According to the 2019 Retirement Confidence Survey, of 2,700 Americans 25 and older from the Employee Benefit Research Institute (EBRI), 40% of workers said they have less than $25,000 in savings and investments (not including their home or traditional pension plans). Another 18% had $25,000 to $99,000. While retirement confidence numbers have been rising, these findings make it clear that many still don’t understand the importance of starting retirement contributions early. Retirement is an exciting time but can also be a stressful time if proper planning was not implemented prior to this new phase of your life.

Seniors are faced with many questions when they are nearing this juncture in their lives: “Will I be happy no longer working or will I be bored?” “How will retiring impact my tax situation?” “Will my expenses be more or less?” And quite possibly the #1 question will be, “How much do I need in retirement to ensure I don’t run out of money?” There are many routes that can be taken to reach a given destination, just as there are many methods that can be used to determine a retirement nest egg number.

80% Rule

Many experts say you want to replace 70-80% of your pre-retirement income so if you make $150,000/year, your goal would be to generate about $105,000 to $120,000 annually in retirement to maintain a similar standard of living.

There are factors that could cause your income need to be higher than 80%. For example, a desire to travel around the world would pile on some additional expenses. If you plan to retire early, you’ll be paying for your healthcare out of pocket. On the flip side, there are factors that could cause your income need to be lower than 80%. Things like paying off student debt or credit card debt, paying off your mortgage, or downsizing to a smaller home could all lower your monthly expenses and overall monthly income required. For most, the 80% rule is a decent guideline.

4% Rule

The 4% rule is a rule of thumb used to determine how much a retiree should withdraw from their retirement account yearly. The goal of this rule is to provide a steady income stream through retirement.

To calculate, you multiply your desired annual net income by 4% or your current annual spending by 25. This will produce the amount your retirement portfolio will need to have in it to withdraw about 4% every year. So, if you need $120,000/year in retirement (80% of your pre-retirement income), then your nest egg requirement would be $3,000,000 (assuming a 5% return after taxes and inflation, not including other income such as Social Security, and a similar lifestyle).

The chart below from Business Insider demonstrates this rule.

The chart from Business Insider demonstrates the 4% rule.


Some experts suggest using a percentage lower than 4% due to expected low-interest rates.

Multiple Rule

Fidelity likes the multiple rule. They suggest saving 15% of your pre-tax income for retirement (including contributions to workplace plans, additional IRAs, and any matching or profit-sharing contributions). Their accumulation goal chart based on age looks like this:

  • By Age 30 – An amount equal to your annual salary
  • By Age 40 – 3X your annual salary
  • By Age 50 – 6X your annual salary
  • By Age 60 – 8X your annual salary
  • By Age 67 – 10X your annual salary

It is important to check your progress at each benchmark to ensure you are staying on track.

Important Considerations

  • Healthcare costs are on the rise. Don’t underestimate the amount you’ll need to cover these costs. According to an annual estimate by Fidelity in April of this year, the average couple retiring in 2019 at age 65 will need $285,000 to cover healthcare and medical costs in retirement. Medicare does not protect you from high healthcare costs.
  • Remember, your budget will more than likely change in retirement. Consider costs you may no longer have (paying tuition for your kid’s college education or perhaps your mortgage payment). Factor in new costs you didn’t have before such as healthcare. Then ensure your expected income aligns with your expected outflows. Pay close attention to categories such as monthly housing, food costs, taxes, travel expenses, insurance costs, transportation expenses, and entertainment.
  • Understand where your income is coming from. Add your pension (if you have one—not many do anymore), social security benefits, and any other sources of guaranteed income, and then subtract this number from the income you’ll need to live on. This will give you an idea of how much income you will need your savings to produce. To find out what your pre-tax monthly benefits are (based on your current earnings); create a free “my social security account” at any time.
  • For additional considerations read our blog, “Retiring in 2019? Things to Consider”

Planning for your retirement will have a huge impact on the quality of your life in your later years, and will help give you peace of mind and confidence now. Enlist the help of a qualified registered investment advisor and/or Certified Financial Planner (CFP ®) today. We can be reached at (410) 824-1853.

Source: Fidelity/ Smart Asset/ Business Insider/ CRR/ Motley Fool/ EBRI


© Geier Asset Management, Inc. June 2019. Gregory Palacorolla, CFP ® is Director of Wealth Management for Geier Asset Management, Inc., a Registered Investment Advisor. The articles & opinions expressed in this material were gathered from a variety of sources, but are reviewed by Geier Asset Management, Inc. prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of June 2019 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual circumstances. In all cases, please contact your investment professional before making any investment choices. Geier Asset Management, Inc. is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.