Retirement Savings Goal: How Much You Need to Retire by 65

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Please note the publish date of this blog. Financial information, market conditions, and other data mentioned in this post may no longer be accurate or relevant.

Leaving the workforce behind and retiring to a life of financial independence is a milestone most people count as one of their top goals. After all, it’s why we contribute regularly to our 401(k)s, budget strategically, and explore saving and investing options for the future.

If you’re preparing to retire at age 65, you’ll need to achieve—or exceed—your savings goal by then. The question is, what should that savings goal be? It can be challenging to estimate your future expenses in retirement, especially if you’re looking to live somewhere else, travel extensively, or otherwise change your lifestyle.

Let’s review what goes into calculating your retirement savings goal, and what you can do to get ahead of it in order to retire with confidence.

Start By Thinking About Your Desired Retirement Lifestyle

When you hear “retirement,” what comes to mind? Perhaps you’re looking forward to relaxing on the porch with a good book, volunteering at the local library, or jetting off to exotic places with your spouse. Retirement has many meanings, and it looks different for everyone.

How you plan on spending your retirement will impact your retirement savings goal. If you plan on traveling first class multiple times a year, that will require a different budget than someone seeking to relax at home with friends and family. If you’re hoping to move somewhere warm and tropical, your monthly utilities might be different than they are today.

While you can’t control or predict everything that’s going to happen in retirement, understanding your lifestyle expectations can help shape your savings goal.

Estimate Your Retirement Expenses

Once you know what you want retirement to look like, you’ll need to calculate your estimated expenses.

This task can feel tedious or overwhelming, so it may help to compile your bank or credit card statements over the last 12 months. Go through them and confirm how much you’re currently spending on basic living expenses, such as:

  • Mortgage or rent
  • Utilities (gas, electric, water, sewer)
  • Internet, cable, phone
  • HOA fees
  • House cleaning or lawn maintenance
  • Groceries
  • Insurance premiums
  • Gym or club memberships

Once you have a good idea of your current spending, run through each item to consider how it might change in retirement. Perhaps your work currently pays for your gym membership—once you retire, you’ll need to cover that on your own. Or, you note that your HOA fees aren’t expected to fluctuate much for the foreseeable future, so you can keep those expenses about the same.

Keep in mind that your retirement lifestyle is going to include costs beyond these basic living expenses. Travel, eating out, concerts and entertainment, new hobbies—it’s important to incorporate discretionary spending into your retirement savings plan to account for these additional considerations. You’ll have more free time in retirement, so don’t underestimate just how many activities or memberships you’ll end up wanting or needing in order to enjoy a fulfilling new chapter of your life.

Don’t Forget About Inflation

Inflation hit 40-year record highs in 2022, and it was felt in nearly every aspect of consumers’ lives: at the grocery store, shopping online, restaurant menus, gas prices, etc.

While things have started to cool, it was a good reminder that inflation always presents a risk to our future retirement income. It erodes purchasing power, which can significantly impact a retiree’s income. As you build out your retirement savings goal, remember that inflation will likely impact the cost of living as you retire. Specific income sources like Social Security get cost-of-living adjustments, but you and your advisor should still discuss ways to incorporate inflation risk into your retirement savings strategy.

Healthcare Costs

The frustrating fact about getting older is that healthcare costs tend to increase in retirement. A recent Fidelity Retiree Health Care Cost Estimate found that individuals turning 65 in 2023 can expect to spend around $157,500 on healthcare expenses throughout their retirement. For a couple, that number jumps to $315,000.  

While Medicare and Medigap insurance policies will help cover some expenses, they won’t cover everything. Long-term care, for example, is not generally covered by Medicare. To try and minimize your out-of-pocket expenses while establishing a retirement savings goal, look into what additional policies you may want to obtain in retirement, such as long-term care insurance.

Identify Your Retirement Income Sources

As you work on setting your retirement savings goal, you need to understand where your income will come from in retirement. Most retirees won’t be living on a paycheck as they did in their working years—although more retirees are heading back to work in retirement than ever before.

A recent study by T. Rowe Price found that 20% of retirees work part-time or full-time in retirement, and it’s not always for the paycheck. Yes, high inflation and rising prices have forced many retirees to adjust their plans, but most people who choose to return to the workforce are still doing so for a sense of purpose and community.

With that being said, whether you choose to work in retirement or not, your income can come from a number of sources, including:

  • 401(k) or 403(b)
  • IRA or Roth IRA
  • Brokerage accounts
  • Social Security
  • Guaranteed income policies (like annuities)
  • Pension plans
  • Additional income (part-time job, rental income, freelance work, etc.)

Juggling multiple income sources is tricky, especially since they receive different tax treatments. Qualifying distributions from your Roth IRA are tax-free, while withdrawals from your 401(k) are subject to income tax.

So, how do you minimize your tax obligation while ensuring your savings lasts for the remainder of retirement? Your financial advisor can help you build a withdrawal strategy that accounts for your anticipated retirement budget, tax liability, estimated retirement timeline, and outside factors like market performance and other economic conditions.

Retirement Savings Goal Formulas

While everyone’s retirement savings goal will look different, there are two common formulas you and your advisor can use to get an idea of your retirement number.

80% rule: Aim to have around 80% of your pre-retirement income saved up for each year you anticipate being in retirement. If you currently earn $100,000 a year, 80% would be $80,000. Multiply that by 20 years or so in retirement, and you have a savings goal of $1.6 million.

25x rule: Once you have your anticipated yearly expenses in retirement—rent or mortgage, utilities, groceries, etc.—multiply it by 25. Say your annual expenses come out to around $60,000 a year. Multiplied by 25, that gives you a savings goal of $1.5 million.

It’s important to note that these are general formulas that can help you understand how much you’ll want to save for retirement. Everyone’s vision for retirement is different so we recommend developing your own unique retirement savings goal with a financial advisor.

How to Reach Your Retirement Savings Goal

The more time you have leading up to retirement, the more impactful your savings contributions will be. This is thanks to compounding interest.

If you’re concerned about reaching your retirement savings goal, now’s the time to buckle down and ramp up your savings contributions. If your employer offers matching contributions, ensure you are at least meeting the match with your 401(k) or 403(b) contributions. Revisit your monthly saving and spending habits to identify unnecessary expenses. Redirect your discretionary spending toward your retirement savings or investment accounts, and resist taking on additional debt—credit card or otherwise—between now and retirement.

Cutting back on short-term luxuries like eating at restaurants or taking big vacations can be challenging to do. It takes a lot of discipline and motivation to save for retirement, but remember what you’re actually doing it for. You’re not just trying to hit a specific savings goal; you’re trying to build a life of financial freedom. When you don’t have to worry about money in retirement, you can spend your days doing what you want—and you don’t have to answer to anyone.

Your advisor can work with you to find solutions for growing your savings and filling the gap between your expected expenses and retirement savings.

Remember, It’s Okay to Reassess and Adjust Your Goal

The closer you get to retirement, the more accurate you’ll want your savings goal to be. That means that what you estimated ten years ago may no longer apply, and that’s okay. Life changes and evolving circumstances will impact your retirement savings goal over time.

Check in with your advisor periodically to make the necessary changes that will keep your plan up-to-date.

Preparing for Retirement? We Can Help

Planning for, transitioning to, and drawing down your savings in retirement is more complicated than most people realize. But one of the most impactful things you can do in an immediate sense is work with a knowledgeable financial advisor who can provide his or her expert advice on preparing for and enjoying retirement.

At Abacus, we can help you stay motivated with your savings strategy and adjust as needed to keep you on track for a future of financial freedom. If you’d like to learn more about working with our team of retirement specialists, feel free to contact us today.



“How to plan for rising health care costs” Fidelity. 21 June, 2023.

Childers, Linda. “Why More Retirees Are Going Back to Work” AARP. 29 Sep. 2023


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