How Much Do You Need in Retirement Saving? A Calculation

Do you know how much you need in retirement saving every year to get to the comfortable level? If you do a calculation, you may come to a surprise that you are probably over saving. Let me explain my calculation. Let’s assume that my salary is $100,000 per year. I contribute $10,000 per year to employer 401(k) plan. Let’s also assume that I get employer match of up to 5% of my gross income, which means the absolute amount of $5,000 per year. In addition, I have an IRA account where I max out with $5,000 per year.

My annual retirement contribution comes to be $20,000, combining contribution to 401(k), IRA and company match. In addition to that, I get an annual profit-sharing contribution deposited to my 401(k) accounts. this amount depends on economy and company performance. For calculation shake, let’s consider the average of last 3 years, which is slightly more than $2,000 per year.

So with imaginary salary, I am saving $22,000 per year towards retirement.

Is my retirement saving excessive?

When I retire 30 years from now (I am not looking at early retirement), at 7% annual rate (this is grossly accepted long-term stock market return rate) the amount in my retirement saving accounts should be over $2.8M. I took in to consideration my current saving as principal at hand and 3% year-on-year salary growth.

Is this amount plenty to have? If it’s a problem of plenty, this seems to be a happy problem to have. I should be happy about it, isn’t it?

But, at the minimum possible age that I can withdraw from retirement savings without paying any penalty, I have to pay more taxes than I planned before I ever would.

Similarly for you, if you have a mountain of cash in your retirement saving, you’ll be paying more taxes upon withdrawal than you ever would have paid had you planned more carefully.

Now, another aspect of it. If you are planning to retire early. Or, if you are planning to quit your boring day job, you have your huge saving locked up in retirement account. Unless you pay penalty, you don’t have access to this fund.

For me, it all depends on how the work situation evolve. How I cope with office politics and how I keep motivated toward growth and career advancement. If things don’t turn out well in next 5 -6 years, I may start thinking about alternatives.

I am not planning to live an ordinary life of 9 -5 office goer either. So, there is a possibility that I may look in to an early retirement  in future. Am I being prudent in socking up $22,000 a year in my retirement fund which I can only lay a hand in my mid 60’s?

I can use my Roth IRA contributions for a few years, provided I convert traditional IRA to Roth prior to that. Since I can withdraw contributions without penalty. Still, it won’t be much. Bulk of my contribution goes to 401(k). Converting that to Roth is going to cost me tax money. I can’t convert now while I am working.

My other saving goals

As I think it through further, I question myself, is my retirement saving rate taking the money away from my other saving goals. I talked about prioritizing saving goals before and as per my goal priority list, I completed 1st goal – the emergency fund and on-target for 2nd, retirement saving. We don’t have any debt either, except a 0% car loan, which I don’t consider a debt as we are not paying any interest on the outstanding balance.

That leaves us with saving for home, raising a kid and provide for his/her college education. I don’t think we are doing bad in terms of saving. We save almost 50% of my salary.

SMB has now started looking for a job. Although we are not hoping to get a high paying job for her as she doesn’t have any earlier work experience, and has a 7 year gap between college and now. Still, a decent paying job would be enough. She has two masters degree on her belt, not looking for minimum wage either. If we can live off of her salary alone, then we can save my pay check entirely towards our goals.

We thought to our self, If I could drop that 401(k) contribution little bit, keeping just enough to get maximum benefit of company match, we would free up some more money towards other goals in our life without risking the quality of our retirement. We could rather think of down paying for home earlier, a dream Europe vacation, or, a month-long cruise to Australia or south Asia.

Again, If I decide to start a small business, I’ll need some upfront capital. I need a saving towards that goal too. It’s a constant dilemma.

Now, how do we know what’s the target number we should aim for retirement.

To answer that, we made a list of free retirement calculator available online. We calculated with Kiplinger, CNN Money, Bloomberg, MSN, FINRA etc. The calculators came out with all different numbers. We took the maximum of the numbers and then added an extra cushion of 15% to it. Now, that’s my target retirement saving amount.  

This is the easiest way to find out how much you need for retirement. That 15% safety cushion should land you in solid foot.

For the next part, we calculated how much I needed to put away every month to reach that target number in 30 years. We adjusted our retirement saving amount in 401(k) accordingly, keeping IRA contribution untouched. Good thing is that we continue to feel secure about our retirement till we keep our job.

This year, we are going to take some big decisions about our lives and that’s going to cost us good deal of money. We now have fund freed up towards that as well. Plus, whatever SMB brings in from her job, would be good for us. The saving goals would be achieved sooner.

What about you? if you are saving in excess for your retirement, adjust your contribution and start socking that money away for other goals; An emergency fund, a home purchase, a side hassle you dream of, a vacation, or whatever it is that really makes your life worth living. May be a charity for that matter, whatever makes you satisfied.

Balance between your post retirement and pre-retirement life.


The above is my opinion, based on the goals and aspiration I and SMB have in our lives. If extra retirement saving makes you feel more secure and you do not have other important goals to save for, you don’t need any adjustment. Continue to contribute towards retirement at the same rate.

Immediately after reading this article, check your numbers through CNN Money Retirement PlannerT. Rowe Price’s Retirement Income CalculatorFidelity’s Retirement Quick Check and Vanguard’s Retirement Income Calculator. I will advice you to use all these tools. Put in information like your age, current saving, salary, how much amount you think you’ll need per month and expected salary increase rate.

These calculators allow you to try out a different savings rates, investment planning and retirement years while projecting your target. By putting these different values you can play around with various retirement strategies before fixing on one.

Ultimately, what matters most is your happiness and fulfillment from life. Do what works best for you.

Let us know what do you think about your retirement saving. Do you need any adjustment? Check out if you can, another retirement post I did a couple of months ago, when is the right time to retire.

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  1. says

    I don’t think I’m over-saving for retirement, because I didn’t really get a good start on it until pretty late. But I also don’t think I need to have the amounts of money set aside that the calculators state — IF I remain healthy. For me health care is the biggest retirement concern.

    • says

      Even though calculators don’t predict exact numbers, still, they are based on historical data and some best guessed assumptions of future. These calculators pass series of tests by financial experts before they appear on the sites I mentioned.

      Point is instead of saving blindly without knowing a target amount I would rather use the calculators and have a rough estimate of the target.

  2. says

    I like your summative comment here SB, ‘Ultimately, what matters most is your happiness and fulfillment from life. Do what works best for you’. I strongly agree. Retirement planning is so much more than the numbers, it’s finding a balance between infinitely different wants and financial resources. Great post.

    • says

      Miss T, I too want to enjoy life when I am physically able, I want to hike to the peak when I can. I want to dive in the coral reef when I can. What’s the point in having millions of dollars in retirement when all I can do is sit on a beach and relax. Individual choices differ, for many the later is the better option, a worry free life is they want.

      • MCK says

        I want to do everthing now too while I can but I fear having to work when my health is giving out. I don’t want to stand for 6-8 hours at Walmart. I’d rather be broke and boring now then finacially comfy later in life. It is easier being poor when you are young!!!!!!!

    • says

      Yes I am all for fulfilling my near goals now since I know I am going comfortably towards retirement in 30 years. I started saving for retirement at the age of 30 when I first came in to this country. I made up for the earlier missed opportunities. As the other reader pointed out, I will have pension (hopefully) and Social security (if at all) on top of my own saving. I think it was a good decision.

  3. says

    Agreed that in many cases it’s really a matter of personal choices and tradeoffs. Decisions people make are often very personal in nature, and our lives are all different to some degree.

    That being said, I think that many people aren’t saving enough for retirement and don’t account for “unexpected” problems, such as medical expenses and long-term care. Better safe than sorry, but no two lives and corresponding goals/values are exactly alike!

    • says

      Yes there are those people. more than 70% of US population over the age of 50 do not have sufficient retirement. I need to have a different post for those. This one is aimed for people who blindly save for retirement sacrificing current lives.

  4. says

    It’s great that you’re thinking critically about how much retirement savings is enough.

    I think at your age, you should balance the savings with putting some of that money towards other goals. You’ll still have enough for retirement and get the use of some of the money along the way.

  5. says

    must first… pay off…….. student loans….. faster…. can’t breath with… loans…. gasp………….

  6. 1KcDesi says

    Hello SB

    I agree with most of your posting. Did you take into account the Social security benefits in your calculations. That can be substantial monthly income for a high earner with $100K in their 30’s..

    You said
    “I took in to consideration my current saving as principal at hand and 3% year-on-year salary growth.”

    With current economy how realistic is that esp. for high income earners?


    • says

      That brings an excellent point and re iterates my decision to cut down on retirement saving rate. I didn’t expect any social security payout when I retire. Any payout would be a plus. I hailed from a third world country who happen to blessed with good hardworking parents who always encouraged me to get ahead of others by being better at study and better at work. That being said, I saw poverty all around me when I was growing up.

      I make a resolution to give back to that society when I have enough money. Any extra money pension (which is also I am eligible for if I stay with my employer till age of 60) and social security would substantiate my net worth and directly should go to a trust helping poor people in third world countries.

      My decision to cut down on retirement contribution is purely based on salary income, excluding pension and social security. I want to buy my first home with down payment and single salary, so I had to accelerate saving on this goal. More information on why I want to buy my home without mortage is here.

      Agreed 3% growth rate is hard to sustain, still there’s a lot of scope for future adjustments if I get a cut or get stagnant on salary. Excellent question and thank for pointing the logical gaps out.

      • 1KcDesi says

        Hello SB

        Thanks for the response! I laud your goals to helping poor people in third world countries using your Social Security money.

        I wish you all the best in attaining your financial / spiritual goals.


  7. says

    I have very little saved in retirement accounts, primarily because I don’t like the idea of having to pay a penalty to access my own money if I choose to withdraw it before a certain age. And who knows what tax rates might do in the next 20-30 years? Having large yearly withdrawals at that time might lead to large tax bills. Who even knows if I will live long enough to access those retirement funds? No, I prefer to simply save and invest and pay my taxes now knowing that I always have full access to my money. Of course my income isn’t all that high so I might change my tune if I had a 6 figure salary.

    • says

      Today’s low interest rates will be with us for quite some time so in real dollars you are not getting much of a return if you are in cash. Also if you are not taking advantage of tax sheltered retirement accounts, you are missing out on the long-term appreciation of invested taxes not to mention and employer match if there is one. My advice would be to set aside some money as an emergency fund and then enroll in a 401k or Roth IRA since you have time on your side.

  8. JoeTaxpayer says

    Wow, nice article, but you need to be aware of a few things.
    Retire early? 401(k) money can be withdrawn penalty free at age 55, if separated from the employer after that age. Assuming you transfer the 401(k) accounts into IRAs when you quit the job, there is an exception, called Sec 72(t) that allows level withdrawals each year till age 59-1/2 or for 5 years whichever is longer. This is key to early retirement.

    As far as ‘saving your way to higher taxes’ read my recent guest post at Kay Bell’s “Don’t Mess With Taxes.” Using a mix of Roth along the way can help you avoid this issue.

  9. says

    I don’t necessarily like the specificity of saving “for retirement.” Yes, I put a certain amount in official retirement accounts mostly for the tax break but having more assets in general is a good thing, whatever you’re saving for. You can live in retirement on assets that aren’t in official retirement accounts as well. If you intend to retire or take a career break at some point other than age 60-something, you’d have to…

    • says

      Exactly that was my point. If I save in a non retirement account, I can still have access to the fund anytime. It adds freedom by not locking money.

      Nearly 40% to get money out from 401(k) where as only 30% on the net gain when money is sitting in a non retirement account.

      • JoeTaxpayer says is my guest post addressing this misconception. A married couple has their first $19,500 of income at zero tax, the result of their exemptions and standard deduction. Next $17,400 at 10%. Where does that 40% number come from?
        If one is saving so much their last dollars out will be taxed this high, it’s time to go Roth a bit, but it takes over $4M pretax to withdraw enough each year to exceed the 25% bracket.

        • says

          Joe this is simple actually. If you are in 25% fed tax bracket and 10% state tax. With 10% early withdrawal penalty, you 45% in taxes when you tap in to your 401 (k).

          • JoeTaxpayer says

            I see. You are talking about an early withdrawal. Presumably, a single withdrawal, not a proposed early retirement. You are right, this is an issue.

            This is why after depositing funds that would be matched, one should fund their emergency savings so the retirement account is truly for retirement. Keep in mind, if one is unemployed, the penalty still applies, but the marginal rate is going to be 0%/10% for small withdrawals. Still less than the 25% rate it saved at the deposit.

  10. says

    I definitely want to retire early, I think, but the number that I’ll have to save makes me nervous. When I look at the retirement calculators on sites like, I freak out that I’ll have to put thousands of dollars a month toward my retirement when I’m in my 40’s to retire early. I hope my future employer matches RSP contributions because I can’t fathom doing that!

  11. says

    Since we moved from the U.S. to Australia, we have a much higher cost of living. I really struggle to put a number on our retirement goal, since $1 million can get you so much more in certain parts of the world than in others!

    • says

      This is one important aspect. If we plan to move in a different country post retirement then we should consider the moving cost and the cost of living in the destination country. You can multiply with the cost of living adjustment index to come to a rough number.

      If I move to India in retirement, as per present COL index, I need to have much less in my retirement account.

  12. says

    If/when you’re able, build a diversified portfolio. Make a goal and when you achieve it, make a new goal. You’ll know what amount feels right for you.

    • says

      A goal towards saving in general or retirement centric goals? Goals always work great in deed. It keeps us on track. Thanks for your comment Brad!

  13. says

    If you are truly saving the above amount, I think you are way ahead of the curve.

    Like others, my current focus is paying off debt..
    but I still make sure to contribute enough to my 401k, to get the full company match.
    You should never turn down free money.

  14. says

    To answer your question – are you saving too much for retirement – NO! I don’t think you can ever save enough. Worst case scenario, you find you have enough to retire early or to pass money on to your children in your estate. Both are inherently GOOD options!

    • says

      what about other goals and fulfilling life when you are physically active? They are very important for the purpose of living. Whats the purpose of your existence? Don’t you want to enjoy life when you can?

  15. Lori says

    I think it’s amazing that those calculators all give different numbers. I work with a financial planner who has worked hard to get me on track to be able to retire early. And, her numbers are very different than what those calculators came up with. I think I’d be in trouble without my advisor because I wouldn’t have a real idea of how to save for my retirement.

    • says

      As I mentioned above, I did lots of calculation and picked the highest one they recommend. I then added 15% to come up to my number.

  16. says

    15% into retirement accounts is a good rule. Personally, I would start with enough to get the full employer match. Next I would max out a ROTH IRA. Third I would go back the the 401(k). I think you will hit 15% before you max out the 401(k). If there is a ROTH option inside of the 401(k), direct your contributions into it. It should not change the employer match or the investment options.

    • says

      Two things, 1. depending on your income you may max out on IRA, Roth IRA and 401k before reaching 15%. I’d suggest still go for an index fund for target date saving (car, home, child education, parental care, etc)
      2. if 401(k) Roth option is tried, will one still be able to put in $17,000 for 40k and $5,000 for Roth , making the total deduction from paycheck of $22,000, is it possible?

      • JoeTaxpayer says

        SB – the 17K to the Roth 401(k) does not impact the $5K IRA. Your income may impact whether you can deduct a traditional IRA or deposit to the Roth IRA.

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    By the time I retire I plan to have our house paid off in full and have a substantial dividend portfolio providing us with income as we grow into retirement.

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