How Much Do You Need to Save for Retirement?

My father, Kent Esplin, was a pioneer in the food storage industry. In the 1950s he started a business, Perma-Pak, that sold dehydrated and freeze dried food.  As the symbol for his business he chose a squirrel holding an acorn. 

Why a squirrel? Because squirrels are great savers.  They save and store enough food when the weather is good to get them through the winter, when food is scarce.  As far as I know there are no squirrel financial planners telling the squirrels how much they need to save.  They seem to instinctively know how much it will take.

Life is much more complicated for us. Complicated enough that people don’t instinctively know how much they need to save for retirement.  However, unless you plan on spending your golden years living in poverty it is an important question to answer.  Below I will present some guidelines that will help you set a goal.      


First, let’s start with some assumptions:

  • Keep your current standard of living during retirement: The guidelines below will allow you to keep your current standard of living during retirement. I don’t believe you should deny yourself your entire life so that you can have a lavish retirement. If that is your goal the guidelines below won’t get you there. I believe you give yourself the best chance for happiness if you smooth out consumption over your entire life, being frugal but not cheap while working. It is alright to satisfy some of your wants prior to retirement.
  • Replace 85 percent of your pre-retirement income: In order to keep your current standard of living you will need to replace about 85 percent of your pre-retirement income. Why only 85 percent instead of 100 percent? Because during retirement you will no longer be saving for retirement. In addition, you won’t be paying payroll taxes.
  • Take Social Security into Account: The numbers below take Social Security into account. They assume you won’t retire until your full retirement age (currently 66 but set to rise gradually to 67 for those born after 1960). If you retire prior to your full retirement age you will have to save more.
  • 4 percent withdrawal rule: One of the factors that makes determining how much you need to save for retirement difficult is that you don’t know how long your retirement will last. Therefore, you need to be conservative on how much you withdraw from savings each year or you are likely to run out of money. The common rule is to start out withdrawing 4 percent of your savings each year, and increase the amount you withdraw at the start of each year by 3 percent to account for inflation. This almost ensures that your retirement savings will last at least 30 years. Since Social Security is also indexed to inflation this gives you a cost of living adjustment each year, which is essential to maintain your standard of living throughout retirement. The guidelines below were calculated assuming the 4 percent withdrawal rule.
  • The less you make, the less you need to save: For those not making much Social Security will replace a higher percentage of your income, and you will have to save less to maintain your standard of living. For those making more, Social Security will replace less of your income. Thus you will have to save more.    
  • Married couples need to save less: The guidelines below are based on household income. Therefore, a married couple will need to save less than a single person assuming equal income between the two households. This is because a married couple will have two people getting Social Security payments instead of just one.
  • No other pensions or passive income: The numbers below assume you don’t have a defined benefit pension or other passive income other than Social Security. If you are lucky enough to have a traditional pension you won’t need to save as much to maintain your standard of living.
  • Multiples of current income: Savings goals below are expressed in multiples of your current income. Therefore, as your income rises your savings goal will also rise.  This makes sense because you are trying to maintain your current standard of living in retirement.

Retirement Savings Goals

These savings goals are based on work presented by Richard C. Marston in his book Investing for a Lifetime: Managing Wealth for the “New Normal” and use the assumptions described above.  

Retirement Income Goals

As shown, depending on your income and marital status you will need to save anywhere from 8.5 to over 19 times your income to maintain your current standard of living during retirement. This is a formidable goal, but not impossible, especially if you start saving early.

Now that you know how much you need to save get busy squirrelling away some money for the winter of your life.  Whatever season of your life you are currently in winter will eventually come.  It will be much more enjoyable, if, like the wise squirrel, you prepare in advance.

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