Picture yourself 30 years from now.
You could be done working, spending your days playing tennis, reading books, and enjoying time with your grandchildren.
Or you could still be working full time, exhausted at the end of the day, wishing you’d made different decisions when you were younger.
For the majority of Americans, the latter is more likely. That’s because 55% have less than $10,000 saved for retirement and 34% don’t have any retirement savings at all, according to a GOBankingRates survey.
If you don’t want to end up as part of that statistic, you have to start planning now.
How much money do I need to retire?
With all the different rules and calculations out there, it can be tough to figure out how much money you should save for retirement.
Here are four strategies that will help you answer the question “How much money do I need to retire?”
1. Aim for 80% of your income
Experts suggest you’ll need at least 80% of your current income in retirement. So, if you earn $75,000 a year right now, you might need $60,000 a year when you retire.
Of course, the amount varies greatly depending on what you want to do in retirement — whether you plan to take frequent international vacations or simply hang out at home with family. But 80% is a good ballpark figure to start with.
2. Understand the 4%
Once you know how much income you want, it’s easier to create an estimate of the total retirement assets you’ll need.
As a basic estimate, Douglas A. Boneparth, certified financial planner and president of Bone Fide Wealth, suggested the 4% rule. It states you can safely withdraw 4% each year without worrying you’ll run out of money.
“It’s an acid test, of course, but it might help you understand what you need to save to retire on a certain lifestyle,” he said.
Using the above example, let’s say you want an income of $60,000 a year in retirement. To determine how big of a nest egg you’ll need, divide $60,000 by .04. The result: You should aim to have over $1 million by the time you retire.
This chart from Business Insider offers some estimates based on that rule:
Sophia Bera, certified financial planner and founder of Gen Y Planning, also likes the 4% rule. “Many financial planners use [it] as a rule of thumb,” she said.
3. Try an online calculator
Many online calculators also offer estimates for how much you’ll need to retire. Each calculator varies in the information it collects — and the number it spits out — so play around with a few and see which one works best for you.
Note whether the calculations factor in Social Security benefits, as your numbers could look different from the ones included above.
One of my favorite calculators is from Bankrate. It offers a range of adjustable options and factors in inflation and raises.
4. Use retirement checkpoints
Want to see if you’re on the right track? Try the following retirement checkpoints.
This chart from J.P. Morgan’s Guide to Retirement allows you to see how you’re doing based on your age and income. Find the intersection that’s closest to you and multiply your income by the number in the cell. The result is your target number.
If, for example, you’re 35 and earn $50,000 a year, you’d multiply your income by 0.8 — meaning you should have about $40,000 in your retirement investments so far.
This Fidelity chart is more conservative. It states you should have a certain percentage of your income saved at different ages.
Using the above example, you’d want to have twice as much as your annual salary saved at age 35 — in other words, $100,000.
As you can see, retirement estimates vary depending on who you talk to. If you want more specific numbers, you should consult a fee-only financial planner who can assess your situation.
Start saving early
Despite the different estimates, there’s one thing every expert agrees on: You should start early and stay consistent.
“Time is just as important — if not more important — than amount when investing for retirement,” said Matthew Deitel, a research and investment strategist at Dunham and Deitel Wealth Management. “That’s due to the power of compound interest. Waiting 10 years could cost you over $100,000 in savings. Even if it’s only $50 per month, the added time can make a huge difference.”
Let’s say you want $1.5 million when you retire at age 67. Using the compound interest calculator from the U.S. Securities and Exchange Commission — and estimating a 7% return, compounded monthly — here’s how much you’d need to save, depending on when you start:
• Age 20: $380 per month
• Age 30: $780 per month
• Age 40: $1,678 per month
• Age 50: $4,053 per month
The earlier you start, the better — and the easier it is to save.
Plus, some factors will change by the time millennials retire, Bera said: “I think the best thing to do is to maximize your tax-advantaged retirement accounts, such as Roth IRAs and 401(k)s, so that you have different tax buckets to pull from in retirement.”
Although the answer to “How much money do I need to retire?” varies depending on who you are, the answer to “Do I need to save for retirement?” is always a resounding yes.