When it comes to retirement planning, clients often have one burning question: how much money do you need to retire? A quick internet search reveals varying figures, which isn’t surprising as there are several variables in play. After all, retirement needs are highly individual.
To help you craft a financial plan that matches your clients’ unique needs, we’ll go over different retirement saving rules of thumb in this article. We’ll discuss the factors you need to consider and explore practical strategies for boosting your clients’ retirement nest egg.
To help clients determine how much money they need to retire, it’s best to work with them to personalize a savings goal based on a range of factors. These include their life expectancy, desired lifestyle, and spending level.
The rules of thumb below can provide useful benchmarks. These strategies, however, aren’t a one-size-fits-all solution.
This retirement planning strategy suggests that retirees will need 80 percent of their final pre-retirement gross income to maintain their lifestyle. The assumption is that certain expenses – including payroll taxes and retirement contributions – will end, allowing your clients to live on less.
To use the rule as a starting point, you can take your client’s final annual working income and multiply it by 0.80 to estimate the required annual retirement income. For example, if their final annual income is $45,000, the rule suggests they will need $36,000 per year in retirement.
The replacement income will come from various sources, including Social Security benefits, pensions, and withdrawals from personal retirement accounts.
While a useful starting point, the 80 percent rule doesn’t often accurately answer the question, “how much money do you need to retire?” This is due to several reasons:
One-size-fits-all assumption: The rule assumes that all retirees have the same spending pattern. In reality, the required income replacement can range from around 60 percent to 90 percent, depending on the pre-retirement income and desired lifestyle
Rising healthcare costs: The rule doesn’t account for potentially huge increases in medical costs as your clients age
Doesn’t consider lifestyle changes: Some retirees experience a "spending surge" in early retirement due to travel and new hobbies. Others downsize or choose a more modest retirement
May not work for high earners: High-income earners usually need to replace a smaller share of their income since Social Security covers less. Lower earners often rely more on Social Security, so they may need less from personal savings
Because each person’s retirement needs are different, it’s best to use more personalized strategies instead of relying on a single rule of thumb:
Focus on spending, not just income: Work with your clients to map out what they expect to spend in retirement, then compare those expenses to all their projected income sources to see if there’s a gap
The 4 percent rule: Suggest clients start by withdrawing no more than 4 percent of their retirement savings in the first year, then adjust for inflation each year. This strategy allows their savings to last about 30 years
Calculate the income gap: Add up steady income sources such as Social Security and pensions, then subtract that from their expected retirement spending. You’ll see how much their savings need to make up the difference
Your clients’ 401(k) plans can be an effective retirement savings tool. This guide can be a useful resource to share with them.
This rule suggests that retirees start by taking out 4 percent of their portfolio in the first year, then adjust that amount for inflation each year after that. This can be a useful benchmark for determining the total retirement pot your client needs.
To find the savings goal, take the desired annual retirement income and divide it by 4 percent or multiply by 25. If a client needs $100,000 per year, they will need a $2.5 million retirement pot.
The 4 percent rule, however, has several limitations, including:
Longevity risk: With people living longer these days, your clients’ retirement savings might need to stretch beyond 30 years, and the 4 percent rule may not always be enough for that
Sequence of returns risk: If the market takes a big hit early in your client’s retirement, it can shrink their savings fast and make it tougher to bounce back
Personalized needs: The rule doesn't account for individual circumstances, such as early retirement, medical costs, and other income sources like Social Security or pensions
Market volatility: The rule is based on historical data, but future market performance is uncertain
Lack of flexibility: As retirement spending fluctuates, your client may need less in some years and more in others; this requires a flexible approach rather than a rigid 4 percent
Dynamic withdrawals: Adjusting withdrawals based on market performance and the portfolio's value, not just a fixed inflation adjustment, can provide more flexibility
Other income sources: help clients use steady income such as Social Security benefits or pensions, so they don’t have to rely as much on their investment withdrawals
This approach from the custodian Fidelity Investments recommends aiming for a retirement savings target of 10 times your client’s final salary by age 67. It uses income multiples at different ages to help clients track progress and adjust their savings goals.
This method gives clients concrete savings targets based on their current salary:
|
Age |
Savings target |
|---|---|
|
30 |
1x their annual income |
|
35 |
2x their annual income |
|
40 |
3x their annual income |
|
45 |
4x their annual income |
|
50 |
6x their annual income |
|
55 |
7x their annual income |
|
60 |
8x their annual income |
|
67 |
10x their annual income |
If your client earns $100,000, the goal is to have $1 million saved by age 67. These benchmarks assume clients start saving at age 25, retire at 67, and invest more than half of their portfolio in stocks. The annual savings rate should be at least 15 percent of pre-tax income, including employer contributions.
Annual income multiples give a quick benchmark, but this approach has some limitations:
Doesn’t track life changes: Clients who start saving late, pause their careers, or face emergencies may fall behind these benchmarks
Ignores investment risk: Market downturns or poor returns can slow savings growth, making the multiples less reliable
Not tax-aware: These targets don’t account for taxes on retirement withdrawals or required minimum distributions
Inflation risk: Rising prices can reduce the real value of savings, especially over long retirements
Variable income: Business owners or clients with fluctuating earnings may find fixed multiples less useful
To address these gaps, you can consider using more dynamic planning approaches such as:
Running simulations: Use Monte Carlo analysis to test how different market scenarios or lifespans affect a client’s plan
Adjusting for taxes: Help clients plan withdrawals in a tax-efficient way to keep more of their savings
Reviewing plans yearly: Encourage clients to update their goals and savings targets as their income or expenses change
Having flexible savings targets: Set savings goals that adjust with a client’s income, especially for those with bonuses or those who are self-employed
Looking for ways to help clients build wealth and retire comfortably? This guide lists effective investing strategies for retirement.
When you’re helping clients figure out how much money they need to retire, it’s important to look beyond the simple numbers. Every client’s situation is different, so here are a few considerations:
Planned retirement age: If your client wants to retire early, they’ll need to save more in a shorter time and make their money last longer
Desired retirement lifestyle: Clients who dream of traveling or picking up new hobbies will need a bigger nest egg than those planning a quieter retirement
Expected retirement expenses: Building a retirement budget is key. For example, if a client will have their mortgage paid off, their housing costs will likely drop
Additional income sources: Steady income from Social Security, pensions, or rental properties can help reduce how much they need to draw from their personal savings
Inflation: Rising prices can chip away at savings over time, so it’s smart to plan for this in both investment and withdrawal strategies
Risk tolerance: Clients with a longer time frame might be comfortable taking on more investment risk, while those closer to retirement may want to play it safe and save a higher percentage of their income
Taking all these factors into account will help you create a plan that fits each client’s unique needs and goals.
Wondering what states are the best to retire in, based on Social Security income? We have them ranked here.
Advising clients on retirement savings means moving past generic rules and building a personalized plan. You’ll need to answer the big question, “how much money do you need to retire?” in a way that fits each client’s unique needs. Here’s a step-by-step guide:
Start by understanding your client's financial and non-financial goals for retirement. This conversation sets the foundation for all the numbers you will calculate. Some questions to ask:
What does their ideal retirement look like? Do they want to travel, move, or stay close to home?
When do they want to retire? The later they retire, the more their savings can grow and the fewer years they’ll need to fund.
How long do they expect retirement to last? Discuss life expectancy and family history to set a realistic time frame.
Work together to build a retirement budget.
Use the income replacement rule: Plan to replace around 80 percent of pre-retirement income but adjust for their actual spending plans
Forecast healthcare costs: Make sure clients are ready for higher medical expenses, especially before Medicare starts. An HSA can help those with high-deductible plans. Learn more about Medicare and HSA benefits in this guide
Calculate with the 4 percent rule: Multiply annual retirement expenses by 25 to estimate the total nest egg needed, based on a 4 percent withdrawal rate
Add up all steady income streams.
Project Social Security and pensions: Use online tools to estimate benefits
Calculate the gap: Subtract Social Security and pension income from total retirement expenses. The rest is what their savings need to cover
This step turns abstract goals into concrete actions your client can take now.
Create a target savings number: Use the income gap and 4 percent rule to set a portfolio goal
Set age-based benchmarks: Apply the annual income multiples strategy
Determine annual savings rate: Recommend saving at least 15 percent of pre-tax income, adjusting higher if they started late
Automate contributions: Encourage clients to set up automatic deposits and get the full employer match
Maximize catch-up contributions: For clients 50 or older, make sure they use catch-up options
Using planning software and calculators can help make projections clear.
Conduct scenario planning: Show how different variables, such as market drops or early retirement, could affect their plan
Create visual reports: Use dashboards to help clients see their progress and understand adjustments
Retirement planning is an ongoing process, not a one-time event.
Schedule regular reviews: Meet to check progress, update goals, and adjust the plan as life changes
Review asset allocation: Make sure clients’ investments still fit their time frame and risk comfort
Visit and bookmark our Retirement Planning Section for easy access to breaking news and industry updates.
To help clients save more for retirement, encourage them to raise their savings rate as income grows and use catch-up contributions if they’re 50 or older. Suggest automating contributions and checking their investment mix each year to match their goals.
Clients often ask, “how much money do you need to retire?” The answer depends on their lifestyle, spending, and income sources. Use rules like income replacement or income multiples as a guide but tailor the plan to each client.
Every rule of thumb has limits. Combining these strategies and adjusting for each client’s needs can make their retirement plan stronger and more effective.
Subscribe to InvestmentNews+ for more exclusive content on retirement planning strategies.
The broker-dealer giant's newest C-suite hire brings 30 years of enterprise technology leadership, including time at Fidelity, to its expanding AI agenda.
One upbeat line in a proxy filing was all it took.
He warned regulators in 2011 - two years before the scandal hit the headlines.
A new analysis finds Social Security insolvency would trigger automatic benefit cuts nationwide with ripple effects for retirees, local economies and advisers.
Third Delaware ruling on the deal - and Shari Redstone's role is back in frame
As $84 trillion prepares to change hands, advisors who treat estate planning as peripheral are quietly building a sieve, not a book.
In volatile markets, the advisors who win aren't the ones with the best calls - they're the ones whose clients stay the course.
