4 Steps to Quickly Figure Out Your Retirement Number

Use this simple technique to determine how much you need to save for retirement starting today.

senior couple connected with...
By Trent Hamm

At some point during each of our professional lives, we wake up to the fact that we really need to be saving for retirement.

We're all going to retire, and that means we're all going to need some money put aside for retirement. The problem is that when we think broadly about saving for retirement, it seems impossible. A million dollars? More? How are we going to possibly come up with that kind of money?

Here's the catch: None of those retirement articles out there -- the ones that talk about having to save millions -- are writing about your situation. Instead, they're writing about someone else, often someone earning a lot more than you.

What you need is a plan that works for you, and that starts with having a good target number for retirement savings.

To calculate your retirement number all you need is your most recent Social Security statement along with how much you made in the past year as well as the number of years between now and when you plan to retire. You'll also need a web browser with Google ready to go and a piece of scratch paper.


Step 1. The first thing you need to figure out is what your current salary will look like when you retire because this whole plan is based on the idea that you'll live on your current income when you retire. If you plan on living on 80 percent of your salary or another percentage, head to Google right now and type in "80 percent of $40,000" or whatever your current salary is. I usually suggest people use 80 percent of their salary for their retirement number because they will no longer have work-related expenses.

Step 2. Expect that long-term inflation will be 3 percent, which is based on a high-end estimate from the Federal Reserve.

So, you should go to Google and type in "1.03^" followed immediately by the number of years between now and when you expect to retire. So, if you expect to retire in 18 years, you'd type in 1.03^18.

Now, take that number and multiply it by your salary (or whatever you decide to use above). If you're using Google, a calculator should appear with the first number already entered for you. If you were using $32,000 per year (80 percent of $40,000) and you're retiring in 18 years, for example, it will give you $54,477, which is what your salary will look like in 18 years with normal inflation.

Step 3. From that number, you need to subtract what you'll receive annually from Social Security, so pull out your Social Security statement and look for your annual benefit.
Subtract that from your salary above. In this example, a person might have an annual benefit of $15,000 from Social Security, so his or her new number would be $39,477.

Step 4. Now, that annual amount is going to have to last you for awhile. I usually assume people will spend an average of 25 years in retirement, but their investments will continue to earn a return while they're retired. So, I tell people to multiply that salary number by 20, which is your final step.

Therefore, a person who makes $40,000 per year and is 18 years from retirement needs to save $789,540 for retirement.

This is a quick calculation, of course, but saving enough to hit your number isn't as scary as you might think, particularly if you're far from retirement. This person, who receives a 1:1 employer match on his or her 401(k) up to 6 percent, and hits all of that while also fully funding a Roth individual retirement account each year, would be close to on pace for that number. Someone starting to save earlier might not even have to push that hard. Someone starting later might have to save even more or consider waiting a year or two longer to retire.

The lesson of this story is simple: Start saving now. You're going to need quite a bit of money to retire, and every year you put it off the harder you make your savings journey.

Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.

More from U.S. News:

Increase your money and finance knowledge from home

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Reverse mortgage is a nice financial instrument for the senior citizens in the country who do not have adequate retirement fund at their disposal and whose age is 62 or more.


November 28 2013 at 2:33 PM Report abuse rate up rate down Reply

Brian, social security has been around for a very long time and medicare since 1968. The cost is only .005%. Right now very low interest rates on the trust fund for bush jr. took out hundreds of billions of dollars and put in treasury notes. Now the GOP does not want the social security trustees to cash in these notes saying the money could be used in other ways. Yes, they are 2 fine well run programs.

November 11 2013 at 6:41 AM Report abuse -2 rate up rate down Reply

If you are on social security and medicare thank a democrat, if you want to end these 2 fine programs vote republican. That is the way they voted on these two bills.

November 10 2013 at 11:59 PM Report abuse -2 rate up rate down Reply
1 reply to toosmart4u's comment

Fine programs? Are you kidding? If anyone but the government ran programs like these they would be in jail!

November 11 2013 at 4:00 AM Report abuse -1 rate up rate down Reply

All these figures seem to have the same problem. A lot of Republicans want to cut Medicare and Social Security. If this happens then don't figure on retirement until your about 95 or when you just think bread and water is all you need. Some changes need to be made, however 3% inflation while the programs are being scaled back will not work.

November 10 2013 at 8:34 PM Report abuse +1 rate up rate down Reply


November 09 2013 at 5:32 PM Report abuse +2 rate up rate down Reply

People are being conditioned to expect the socialist government to take care of them ( as long as they vote for the right party)

November 09 2013 at 1:26 PM Report abuse rate up rate down Reply
1 reply to crimeslawyer's comment

Yes they all need lawyers so they can sue each other and don't really have to work.

November 10 2013 at 8:49 PM Report abuse rate up rate down Reply

Guys like him are the same ones who helped Madoff steal millions. The investment \"advisors\" only want free captital to finance their own retirement. Most people can live very well after retirement on 50% or less of their current salary.

November 09 2013 at 12:54 PM Report abuse +2 rate up rate down Reply
Hi Den

95% of the population...tune out. They are not talking to you.

November 09 2013 at 11:37 AM Report abuse +1 rate up rate down Reply

Notice that the authors expect your salary to keep pace with inflation....droll, very droll. AND they think employers still match 401k contributions. Not around here they don\'t unless you are in a union that mandates that. Also, they do not factor in that about 1 of every four people will spend some time in a residential care facility (nursing home) in their lifetime, or require help to stay in their own home. Make sure you have long-term care insurance in place and can afford to keep it going, by the time you are late fifites or so. Useless.

November 09 2013 at 10:45 AM Report abuse +1 rate up rate down Reply

So, a person making $40,000. a year needs to save just $789,540. in the next 18 years in order to be able to retire ... Hahahahahahahahahahahahhaaaaaaaaa .... What drugs are you smoking?

November 09 2013 at 7:08 AM Report abuse +8 rate up rate down Reply