When it comes to retirement, there is no one size fits all approach.



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For instance, some people have decided to join the F.I.R.E. Movement in order to retire early — sometimes in their 30s or 40s. In contrast, others continue working until their 60s or 70s before they retire.

According to the Social Security Administration, workers are eligible for full Social Security benefits between the ages of 65 and 67, depending on their birth year. And, at 65, Medicare benefits begin.

Most people cannot afford a comfortable retirement on Social Security alone, even if they delay their benefits. Why?

Well, as of July 2022, the average check is $1,544.70, according to the Social Security Administration. To put that in perspective, the maximum monthly payout for someone retiring in 2019 was $2,860. However, that amount can vary significantly depending on who the recipient is. Most retirees, though, make more than the average income.

Most of the time, Social Security benefits are considered supplementary to investment income as well as retirement savings accounts, such as 401(k) and IRAs.

No matter when you retire, you should consider what time is the best from a financial standpoint. In other words, a retirement lifestyle that is financially viable is one that is financed by your Social Security payments, investments, and savings accounts combined.

But, I know that you’re itching for a more specific answer. So, let’s try to answer this important question, “How many years until I can retire?”

How to Calculate the Amount You’ll Need in Retirement

When planning for retirement, it’s important to determine your retirement age and the amount of money you’ll need to save before you retire. American retirees have a variety of retirement savings options, including:

  • Employer-offered retirement plans, such as a 401(k)
  • Social Security
  • Savings and investments
  • Other fixed sources such as pensions and annuities.

In short, your first step should be to figure out how you will earn retirement income. What kind of 401(k) do you have? What type of IRA is best for you? Traditional or Roth? How much money do you have in a standard savings account?

The income you earned prior to retirement may need to be replaced in a significant percentage. Also, Americans live an average of 20 years after retirement. To be able to sustain yourself and live comfortably after retirement, make sure you have enough savings and investments.

Let’s Talk About Social Security

Approximately 40% of a person’s income before retirement is replaced by Social Security. While the retirement program will probably not be enough on its own, it is undoubtedly important.

It is important to know that Social Security benefits are calculated based on the 35 years in which you earned the most money. And, as already mentioned, as of July 2022, the average check is $1,544.70.

But, what about the maximum benefit at full retirement age? A few factors determine how much you could be entitled to receive from Social Security: how much you’ve earned over your working years, when you start receiving benefits, and how much your COLA increases are. If your COLA increases over time, your benefits will also increase.

By retirement age, the maximum initial monthly benefit in 2022 will be:

  • 62: $2,364
  • 65: $2,993
  • 66: $3,240
  • 70: $4,194

Check out your latest Social Security statement or log into your mySocialSecurity account at www.ssa.gov to determine how much you could get from Social Security.

What’s the earliest date you can collect your benefit checks? While the Social Security Administration (SSA) defines a full retirement age based on your birth year, technically, anyone over the age of 62 who is eligible can begin collecting benefits at any time.

If you begin collecting Social Security before the full retirement age, your benefits will be adjusted accordingly. A smaller check will be received if you claim Social Security at 62; a larger check will be received if you delay claiming until 70 if you claim later.

Income-based Calculation

According to many financial experts, a 70 to 85% replacement rate is recommended. A retirement goal could, for example, be to live on $35,000 to $42,500 annually if you make $50,000 a year.

How did they come up with this estimate? The idea is that you should spend less on the following items after you retire:

There are, however, exceptions to this “rule”.

If you’re at the beginning of your career or life journey, for instance, this rule of thumb may not be particularly helpful. In your later life, you may earn less or spend less than you earn today. When you are unsure of what your pre-retirement income will be, it can be difficult to estimate how much you will need for your senior years.

Furthermore, it is assumed that most of what you earn is spent. The method might not make sense for you if you are a saver by nature and spend much less than you earn every year. It might not work for you either if you rack up credit card debt and live above your means.

It may be necessary to increase your target to 100% of your current income if these expenses are in your future.

While Social Security (and potentially a pension) will provide some income, you will need to save the rest.

Spending-based Calculation

Most people find that calculating retirement savings based on spending is a better method. Any person can benefit from this method — regardless of whether they are a spender or a saver.

There is a good chance that you will spend a different amount when you retire than when you are working. For instance, you could pay off your mortgage before retirement to avoid having to make mortgage payments every month. It is possible that you no longer need to provide financial support for your children if they live on their own. Aside from that, you won’t have to pay for child care, commutes, or business attire related to your job.

It is possible, however, that you will have new expenses in retirement, such as:

  • A costly vacation or other lifestyle purchase like a second home.
  • Expensive health care.
  • Gifts to family members such as college tuition.
  • Inflation.
  • Stock market volatility.

Costs associated with medical care, including out-of-pocket prescriptions, are the greatest financial concern for seniors. In order to ensure you can afford health care without incurring debt or burdening your children, you may want to have enough saved to cover these costs.

In your golden years, you may not want to deal with housekeeping chores such as shoveling snow, cleaning gutters, or raking leaves, which you may be struggling to do on your own as you age. Also, traveling and exploring hobbies during retirement can also be expensive for retirees.

It is reasonable to assume you will spend close to the amount you will spend in retirement, considering your current expenses can decrease while you will have new ones.

Multiply Your Yearly Spending By 25

Okay. I might have thrown too much information at you. So, let’s circle back and focus on a quick calculation.

Again, it’s generally agreed that you will need 70 to 85% of your pre-retirement income to maintain your standard of living after retirement. As a baseline, let’s use 80%. Using this example, multiply your current household income by 0.80. Then divide that result by 12 to estimate your monthly income needs after retirement.

For simplicity, keep this amount as is, or adjust it higher or lower to suit your retirement goals. It may be necessary to plan on additional income if, after retirement, you plan to travel or pursue an expensive hobby.

Next, subtract your anticipated Social Security benefit and pension income. The amount left is the income you will need to generate each month from your savings, so multiply by 12 to determine how much to withdraw from these retirement income sources annually.

As a general rule, retirees can withdraw 4% of their savings in their first year of retirement, and this amount can increase based on price increases after that. To be fair and balanced, though, there are issues with the 4% rule.

For one, there’s no guarantee the markets won’t have downturns. Additionally, your asset allocation might differ from the 60-40 rule.

“Another issue with the 4% rule is that your spending may change from year to year during retirement,” explains Kate Underwood in a previous Due article. “While some retirees may be able to maintain fairly steady spending rates, some years, you might face unexpected bills out of your control.”

In spite of its shortcomings, this rule can be a valuable tool for estimating retirement readiness.

Using this rule, you simply multiply the retirement income you need each year by 25. For example, if you expect to need $30,000 in annual retirement income, you should aim for a nest egg of $750,000.

Retirement Calculators

Not a fan of crunching your retirement numbers manually? I hear ya. Thankfully, there is no shortage of retirement calculators for you to use.

A basic retirement calculator will ask for the following components:

  • Your current age: Enter the age you are at the moment.
  • Current retirement savings: Enter your current savings for retirement.
  • Monthly amount invested: Specify how much you invest every month for retirement.
  • Annual interest rate: This is what you expect your investments to earn each year.
  • Amount at retirement: Choose the amount you wish to retire with.

Based on your current savings rate and expected return on investment, you can calculate when you can retire using a retirement calculator. However, for a more accurate retirement picture, you can use a more advanced retirement calculator.

Take the Bankrate Retirement Calculator, which the company dubs the “best.” In addition to basic information like current age, age of retirement, household income, and current retirement savings, you’ll also input:

  • Rate of Return Before Retirement. Your retirement savings and investments will yield this rate of return annually.
  • Rate of Return During Retirement. During retirement, you should expect to earn an annual rate of return on your savings and investments.
  • Expected Income Increase. Percentage increase in household income you expect each year.
  • Expected Rate of Inflation. This is what you would expect for long-term inflation.
  • Married Checkbox.
  • Social Security Checkbox. Make sure this box is checked if you are planning to take advantage of Social Security benefits during retirement.

You can use annuity calculators to determine how comfortably you can retire and what you should save. It only takes a few simple steps; you will need to know how much you can afford to save, how many years you want to save, and how many years you want to receive the money.

The Bottom Line

Ultimately, you’ll be able to retire when your income streams, like Social Security, investments, and savings, can support your desired standard of living in retirement.

At the same time, there is no one-size-fits-all solution. Retirees are often tempted to travel the world after they retire, but others are content to live a simple and frugal life after they retire.

A financial advisor can assess your current situation and suggest a savings and investment plan to help you achieve your retirement goals.

Frequently Asked Questions

1. What is the average retirement age?

The average retirement age in the United States is 63, but when you decide to retire depends on many factors:

  • Savings. Social Security retirement benefits average $1,544.70 — as of this writing. However, for most people, this is not enough to cover living expenses. There is a severe shortage of retirement savings among most Americans. If you don’t have enough money for your nest egg, you may not be able to retire when you want – or you may not be able to pay your bills if you can’t work. As a result, many lower their standard of living once they stop earning a regular income.
  • Lifestyle. The amount of money you need for retirement depends on your desired lifestyle. Traveling, for instance, will require you to have a larger retirement account balance than staying local and downsizing.
  • Location. The higher your cost of living, the more money you need to retire comfortably. Your retirement years may be shortened if you relocate to a less expensive region.
  • Health. You are able to work to a greater or lesser extent depending on your health. You may have to retire sooner if you suffer from chronic or debilitating health issues.

2. How do you determine full retirement age?

The Social Security Administration provides a retirement age chart that can help you determine your full retirement age. If you cash in before your full retirement age, this chart will illustrate how much your retirement benefit will be reduced.

3. How will your account for the unexpected in retirement?

What’s my contingency plan?

“Life often doesn’t go as expected. An unanticipated repair bill or medical expense can be harder to manage when you can’t volunteer for an extra shift or otherwise easily increase your income,” says Liz Weston, CFP®. “That’s why many planners recommend retirees have a larger emergency fund — perhaps six to 12 months’ worth of expenses, rather than the typical three to six months recommended for working people.”

As long-term care isn’t covered by Medicare, you’ll also need to plan how to pay for it. A long-term care insurance policy is one option. You may also be able to tap into your home equity or set aside some savings or investments for this purpose.

How will I compensate for inflation?

“Even a mild inflation of 3% will cause prices to double over 24 years, and health care costs typically rise at an even higher rate,” adds Weston. “That’s why financial planners often recommend new retirees keep 40% to 50% of their portfolios in stocks, which are the only investment class that consistently beats inflation.”

Two other hedges against inflation are rent from real estate investments and Treasury inflation-protected securities. “Social Security offers cost-of-living adjustments; pensions may or may not,” she says. “Fixed annuities can be purchased with inflation adjustments, although that means your checks will be smaller at the beginning.” It may also be a good idea to reduce expenses, such as travel and eating out less.

4. How will I earn an income in retirement?

Retirees receive income primarily from four sources, according to the Social Security Administration:

  • Personal Savings and Investments
  • Earned Income
  • Company Pension Benefits
  • Social Security Income

5. What is the ideal amount of savings I should accumulate before I retire?

In the period leading up to retirement, you should save as much as possible. It is recommended that you save around 10-15% of your annual income throughout your career. Achieving this goal takes 35-40 years. As such, it’s best to begin in your 20s.

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