Determine Whether You Have Enough Savings to Retire

5 Steps to Calculate How Much You'll Need to Retire

Smiling retired couple with enough savings in the bank taking a sun-filled walk in the park

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Do you have enough to retire? If you really want to know, you'll need to do some personal calculations based on when you want to retire and how much you want to spend while in retirement.

To get a rough estimate, walk through five simple steps to come up with a simple yes-or-no answer.

5-Step Calculation for Retirement Saving

Here is an overview of the simple five-step calculation to determine whether you'll have enough income and savings to cover your expenses in retirement. Answer these questions:

  1. What are your total annual contributions to retirement savings?
  2. Multiply that number by the number of years left until retirement (the "when you want to retire" part).
  3. Add your current retirement savings to that number.
  4. Divide by the number of years you expect to live in retirement.
  5. Add that to other guaranteed sources of income.

When you are done with the calculation, compare the answer to your current annual expenses to see whether the amount projected is enough to cover the living expenses you normally have.

Example Using the 5-Step 'Enough-to-Retire' Calculation

Here's a walk-through of the five-step calculation for a sample couple:

  • A couple, age 55.
  • Each contributes the maximum amount to their IRA account every year, for a total of $14,000 of IRA contributions each year ($7,000 each).
  • They have $150,000 saved already.
  • They would like to retire at their full retirement age as defined by Social Security, which is age 67.
  • Based on the output from a few life-expectancy calculators, they expect at least one of them to live to age 94, so they expect at least one of them to have 27 years in retirement.
  • He will have $2,200 per month ($26,400 per year) in Social Security benefits, and she will collect half of this amount ($13,200 per year) as a spousal benefit.

Using their data, this is how the "enough-to-retire" calculation works:

  1. $14,000 (their total annual contributions to retirement savings.)
  2. $14,000 x 12 = $168,000 (their total annual retirement savings, multiplied by years left until retirement)
  3. $168,000 + $150,000 = $318,000 (their total expected future retirement savings added to existing savings.)
  4. $318,000 / 27 = $11,777 (their total future and existing savings, divided by the number of years expected to live in retirement)
  5. $11,777 + $26,400 + $13,200 = $51,377 (annual expected retirement income from savings, added to other sources of guaranteed income; in their case, Social Security)

In this case, the $51,377 represents their annual expected retirement income. They need to compare this to their expenses to see whether it will be enough. If you aren't sure what your expenses will be in retirement, make a retirement expense projection to come up with an estimate. 

This calculation is sufficient assuming both spouses are alive, but upon the death of the first spouse, the lower Social Security amount (in this case, hers) will go away. The higher amount will continue as a widow/widower benefit. However, certain expenses are also likely to go down upon the death of a spouse, such as healthcare and insurance costs, transportation, and utilities. 

Objections to This Type of Retirement Calculation

Some will object that this simple enough-to-retire calculation does not take into account the growth rate of investments, or inflation. For the sake of simplicity, assume that a growth rate of safe assets is 3% and that inflation is 3%. Those two variables would then cancel each other out.

It is impossible to accurately predict all of the variables that will affect one's retirement income plan over a 30-year time horizon. More detailed planning is useful, but this simple enough-to-retire calculation method offers a great starting place. 

What If You Don't Have Enough?

Some people don't want to do any calculating, because they are afraid of the answer. That is the ostrich approach. Don't do that! It is far less stressful to do the math, face reality, and figure out an answer. Understanding your unique situation will allow you to prepare and adapt more easily than if you try to ignore it.

If you run through the calculations and think you don't have enough to retire, you can explore many options, such as working a bit longer, finding ways to earn additional money, finding ways to reduce expenses, or moving to a lower-cost area. All of these actions can help bring retirement within reach.

Frequently Asked Questions (FAQs)

What is the average amount of retirement savings in the U.S.?

A study from Northwestern Mutual found that the average amount of retirement savings among Americans was a little under $100,000. However, some 26% of non-retirees haven't set anything aside for retirement yet. For those between the ages of 18 and 29, that figure rises to 38%.

What is the Retirement Savings Contribution Credit?

The U.S. has a special tax credit designed to help lower-income Americans save for retirement. It's called the "Retirement Savings Contribution Credit" or "Saver's Credit." Those who earn less than $33,000 annually ($66,000 if married filing jointly) may qualify for a tax credit of 10%, 20%, or 50% of their retirement contributions. This tax credit applies both to pre-tax contributions, like those made to a 401(k) plan, as well as post-tax contributions, like those made to a Roth IRA.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."

  2. Social Security Administration. "Normal Retirement Age."

  3. Social Security Administration. "If You Are The Survivor."

  4. Northwestern Mutual. "Planning & Progress Study 2021."

  5. Board of Governors of the Federal Reserve System. "Report on the Economic Well-Being of U.S. Households in 2020 - May 2021."

  6. Internal Revenue Service. "Retirement Savings Contributions Credit (Saver's Credit)."

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