Most people that are nearing retirement age ask the same question:

“How much do I need to retire?”

If there were a definitive hard-and-fast answer I’d give it to you right now. But the truth is, there is no one-size-fits-all answer to this question.

But that doesn’t mean you can’t know for yourself what you need to retire.

There are similar factors that affect everyone. And these same factors will determine how much you need to retire. And although the final dollar amount will be different for everyone, the factors generally apply across the board.

So let’s go over a 3-step process that I use with my clients. You can use this too to help you determine how much you need to retire.

It’s All About The Lifestyle

The first step is to determine the lifestyle you want to live in retirement, and most importantly, how much that lifestyle will cost.

To determine this you must get a good idea of your monthly spending. And even more importantly, what will your monthly spending look like in retirement.

When you quit work your spending may change. For example, you may have to start paying for your own health insurance. Or you may have lower health insurance costs because you will be getting on Medicare at age 65.

Also, some people will delay retiring until they have paid off all debt, including their home mortgage. If your mortgage will be paid off by the time you reach retirement that is less income you will need to make ends meet.

If you really want to get detailed you can break out your lifestyle expenses between necessary expenses and discretionary expenses.

The necessary expenses are the ones that must be paid every month for the rest of your life.

Hint: you want a guaranteed lifetime income source for these… seeing as how these expenses will last the rest of your lifetime and all.

Discretionary expenses can be cut back if you don’t have the funds for them. In other words you don’t have to have a guaranteed lifetime income source for these expenses.

FYI: If you feel it is an absolute necessity to give a specific dollar amount in gifts to your kids and grandkids each Christmas, you may as well count that as a necessary expense, even though you don’t necessarily have to give it.

The less it costs for you to live the lifestyle you want in retirement, the less you will need to retire on. The more it costs, then the more you will need in order to retire.

It is also essential that you consider inflation in these costs. A good estimate is 3-4% each year in inflationary increases.

It’s All About The Income

After you know the costs of the lifestyle that you want in retirement, you must determine your income sources.

For most people that will include Social Security. You must determine when to draw Social Security. I have discussed that here.

If you are fortunate you may have a pension from a former employer. And you may have other sources of income as well, such as rental income or existing annuities.

Once you add up all your sources of retirement income, there is a good chance it will not be enough to cover the monthly expenses of the lifestyle you want to live in retirement.

And if it is enough to cover your expenses… Congratulations! But don’t get too happy just yet. Have you considered what inflation will do to your expenses over the next 30 years?

Everything may look fine now, but will it look that way years down the road?

Consider that an industry standard inflation rate to use is 3-4% when projecting forward. You know that Social Security has a cost of living adjustment, but most retirees will say the Social Security increase is usually not enough to keep up with general inflation.

Now also consider your pension (if you have one). Most pensions are not inflation adjusted.

What this means is that your expenses will very likely grow faster than your income sources. At some point in the future expenses may exceed income.

At that point you will have to look to your savings to fill in the gap. Which brings us to the last step.

It’s All About The Investments

Now that you know you will need additional income to live the life you want in retirement, you have to determine how to efficiently use your savings. Your savings must not only fill the income gap, but they must do it for the rest of your retirement, which could be 30 years.

Each individual will approach this differently.

Some people will feel comfortable filling the income gap with withdrawals from a diversified portfolio. They may adhere to the 4% withdrawal rule, although recent research is showing that the 4% withdrawal rule may not work as well today.

Other people may feel more comfortable using dividend paying stocks to generate an income stream. Or they may try to live on the interest only from their investments.

The problem with these methods is companies can reduce their dividend, thus decreasing the retiree’s income source.

And using interest income generating investments can be tough in this low interest rate environment. The retiree would essentially need a much larger nest egg to just live on the interest income.

Other people may feel more comfortable using annuities with contractual income guarantees. These guarantees can last a lifetime. They typically will not be inflation adjusted. But with a smart annuity strategy (in other words, not using just one annuity to solve all your needs) this can be accounted for and overcome in most cases.

Annuities will not give you the potential for growth that a diversified bond and equity portfolio will give. But many retirees are more concerned about safety and guarantees, as long as these guarantees can give them the income they need to afford the retirement lifestyle they’ve always wanted.

How Much Do I Need To Retire?

So this is a process you can take yourself through to determine how much you need to retire. As you can see, the final answer will be dependent on many variables. All things being equal, the variables work out this way:

  • The greater my retirement income sources, the less I need to retire
  • The lower my retirement lifestyle expenses, the less I need to retire
  • The lower my retirement income sources, the more I need to retire
  • The higher my lifestyle expenses, the more I need to retire
  • If I don’t want to spend my principal, the more I’ll need to retire to generate sufficient dividend and interest income
  • If I’m willing to spend my principal, the less I’ll need to generate sufficient retirement income

These are the main factors that will affect how much you need to retire. Everyone’s final answer will be different, but the process of determining that answer will look similar.


Do you know someone that is struggling with the question “How much do I need to retire?” If so, forward this article to them. We can reach more people with this helpful message together than I ever could alone.

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And if you need help answering the question, then feel free to reach out to me. You can email me by CLICKING HERE.

Or you can find a convenient time on my calendar to talk by CLICKING HERE. I’ll help point you in the right direction.

Best Regards,


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