How much do I need to save for retirement?

“How much to save for retirement?” Planning for retirement can be overwhelming. Many times, you may find yourself with more questions than answers. The magic number is a complex formula that depends on a combination of factors such as personal goals, lifestyle choices, taxes, family circumstances, and other financial variables.

Whether you’re just starting your career or approaching retirement age, understanding how to calculate your retirement needs is essential for building a secure and comfortable future.

For high earners, the question “How much do I need to save for retirement?” goes beyond just meeting basic needs—it’s about preserving lifestyle, maximizing wealth, and planning for legacy. Earning a high income offers more flexibility and opportunity, but it also brings greater complexity to retirement planning. Factors like tax efficiency, investment strategy, lifestyle inflation, and estate planning play a critical role.

In this article, we’ll break down the key factors that influence retirement savings goals and help you create a personalized plan that aligns with your vision of retirement.

Understanding Your Retirement Savings Goal

The amount you need to save for retirement depends on several factors unique to your situation, including your desired lifestyle, retirement age, life expectancy, expected expenses, and sources of income. While there’s no one-size-fits-all answer, financial planners often use rules of thumb to provide a starting point. Two popular guidelines are:

The 25x Rule: Save 25 times your annual retirement expenses. For example, if you expect to spend $50,000 per year in retirement, aim for a nest egg of $1.25 million.

The 4% Rule. Withdraw 4% of your total retirement portfolio in the first year of retirement. In each following year, you adjust that amount for inflation. The rule is designed to make your money last for 30 years.

The 80% Rule: Plan to replace 80% of your pre-retirement income to maintain your lifestyle. If you earn $100,000 annually, you’d need $80,000 per year in retirement.

Savings Benchmarks by Age:

• 1x your salary saved by age 30
• 3x by 40
• 6x by 50
• 8x by 60
• 10x by retirement 65-70

These rules are helpful, but they oversimplify the process. Let’s explore the key factors and questions that shape your retirement savings plan to get a more accurate picture.

What Will Your Retirement Lifestyle Cost?

Your retirement expenses depend on the lifestyle you envision. Do you plan to travel extensively, downsize to a smaller home, or pursue hobbies? Start by estimating your annual expenses in retirement, including:

• Basic living costs: Housing, utilities, food, and transportation.
• Discretionary spending: Travel, entertainment, and hobbies.
• Healthcare: A critical and often underestimated expense (more on this later).

Average annual expenses for retirees could vary widely, from $60,000 for frugal households to over $250,000 for those with lavish lifestyles.

To estimate your number, create a retirement budget. Use your current spending as a baseline, adjusting for changes like paying off a mortgage, reduced commuting costs, or increased travel. Don’t forget to account for inflation, which erodes purchasing power over time. A 3% annual inflation rate means $50,000 today will be worth about $37,000 in 20 years.

What Are the Best Retirement Accounts to Use?

The accounts you choose to save for retirement play a big role in how much you can accumulate and how your savings are taxed. Here are the most popular options:

• 401(k): Employer-sponsored plans allow contributions up to $23,000 in 2025 (plus $7,500 catch-up contributions for those 50+). Many employers offer matching contributions, which are essentially “free money.” Traditional 401(k)s provide tax-deferred growth, while Roth 401(k)s offer tax-free withdrawals.
• IRA (Traditional or Roth): Individual Retirement Accounts have a 2025 contribution limit of $7,000 ($8,000 for those 50+). Traditional IRAs offer tax deductions on contributions, but withdrawals are taxed. Roth IRAs use after-tax contributions, but qualified withdrawals are tax-free.
• Health Savings Account (HSA): If you have a high-deductible health plan, HSAs are a powerful tool for retirement healthcare costs. Contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. In 2025, contribution limits are $4,150 for individuals and $8,300 for families, with a $1,000 catch-up for those 55+.
• Taxable Brokerage Accounts: These accounts offer flexibility with no contribution limits or withdrawal restrictions but lack the tax advantages of retirement accounts.

Which is best? It depends on your income, tax situation, and goals.

For example, a Roth IRA or Roth 401(k) is ideal if you are in a lower tax bracket today but expect to be in a higher tax bracket in retirement or want tax-free income.

Maximizing your traditional 401(k) can reduce your taxable income if you’re in a high tax bracket now.  

An investment account could allow for harvesting tax loss, tax-favored long-term capital gains, and step-up cost basis.

How Do I Plan for Healthcare Costs in Retirement?

Healthcare is one of the biggest wildcards in retirement planning. A couple retiring at 65 may need $165,000–$360,000 for healthcare, and this doesn’t include long-term care, which can cost $50,000–$100,000 per year for nursing homes. To prepare:

Understand Medicare: Medicare covers many healthcare costs starting at 65, but it doesn’t cover everything (e.g., dental, vision, or long-term care). Budget for premiums, deductibles, and supplemental plans (Medigap or Medicare Advantage).

Consider an HSA: If eligible, use an HSA to save for medical expenses. After age 65, you can withdraw HSA funds for non-medical expenses (though they’re taxable), making it a versatile account.

Explore long-term care insurance: Policies can help cover nursing home or in-home care costs, but premiums are expensive. Buy in your 50s or early 60s to lock in lower rates.

Stay healthy: While not a financial strategy, maintaining good health through diet and exercise can reduce medical costs.

What Income Sources Will You Have?

Your savings goal depends on how much income you’ll need to replace. Common retirement income sources include:

• Social Security: The average Social Security benefit in 2025 is about $1,920 per month, but your amount depends on your earnings history and when you claim (age 62 to 70). Delaying until 70 increases benefits by up to 8% per year past full retirement age (around 67 for most).
• Pension: If you have a defined-benefit pension, factor in its monthly payments.
• Savings and Investments: Your 401(k), IRA, or brokerage accounts will provide supplemental income through withdrawals or dividends.
• Part-time work or passive income: Some retirees work part-time or earn rental income.

To estimate your savings need, subtract your expected income from your annual expenses. For example, if you need $100,000 per year and expect $36,000 from Social Security, you’ll need $64,000 from savings. Using the 4% safe withdrawal rule (withdrawing 4% of your portfolio annually), you’d need $1,600,000 to generate $64,000 annually.

Account for Taxes

One of the most underestimated retirement costs is taxes. While your working years may be focused on tax-efficient accumulation, retirement is all about tax-efficient distribution. Without careful planning, taxes can significantly reduce your net income and shorten the longevity of your portfolio.

Proactive tax planning — ideally starting years before retirement — can protect your wealth, extend the life of your savings, and give you more control over how and when you spend. Working with a tax-savvy financial advisor is highly recommended to customize a distribution strategy that minimizes tax drag over your lifetime.

Contact us today to build a retirement plan that works for you.