The first step to saving for retirement is calculating how much you need to save up! Some might be surprised at how much money they will need to save in order to retire comfortably. Thankfully, there are also a few things you should be aware of that will make your retirement savings goal more attainable than you had thought.

“How much should I save for retirement?” There's a quick formula that we'll show you that walks you through exactly how much you will need to save for retirement. It's not rocket science, and is actually an accurate calculation (unlike many other sites missing common and important details to get it right, such as inflation for example…).

How To Calculate How Much You Need To Save For Retirement

Perhaps the biggest problem when it comes to saving for retirement, is not knowing how much you should save soon enough. What happens, is families begin thinking about how much they might need for retirement, yet to realize they would have to save their entire salary to reach their goal!

If this sounds like you, don't panic. There are ways to speed up your savings that you may not be aware of. If you're reading this in your 20's, CONGRATULATIONS! You're thinking about this topic at the right time.

Step One: Determine Your Retirement Lifestyle & Retirement Age

In order to calculate how much money you need to save for retirement, there are a couple questions you need to ask yourself first that will determine your savings goal. They are:

  1. At what age do you anticipate you will retire?
  2. What type of lifestyle do you plan to live in retirement? Will you travel a lot, live in a bigger/smaller house than you do now, etc.?
  3. How much money do you want to live on per year in retirement?

These questions will help you get an idea of what type of income you will need in retirement. If you currently live on a household income of $75,000, do you anticipate your retirement income to be the same? More? Less?

Once you've determined what type of lifestyle you want to live in retirement, and thus the approximate retirement income needed for said lifestyle, we can now accurately calculate how much that will equate to at your expected retirement age.

Step 2: Calculate The Future Value Of Your Desired Retirement Income

Some of you may be asking “what do you mean by ‘future value?'” To illustrate the concept, consider how much money it cost to fill up your gas tank when your parents were your age, how much a candy bar cost 30 years ago, or how much your parents first house cost. As you can see, the price of goods and services in general, increase every year. This concept is called inflation, and it's a VERY important and often missed concept when calculating your retirement savings.

The future value is taking the value of today's dollar, and calculating how much it will be worth in the future. In other words, if you wish to live on a $75,000 income in retirement, and you plan to retire in 35 years, then we need to find out how much money that $75,000 income will actually be in 35 years from today to equate for the change in prices over the years. On average, the cost of goods increase about 2% – 3% per year, which allows us to then calculate your retirement income.

Here's how to calculate the equivalent value of $75,000 in 35 years from today, with an average inflation rate of 2.5%.

For sake of keeping things simple, we will use for our financial calculator. However, the same process can be done using a financial calculator manually if you have one. The values will be input the same way on a physical calculator as they will when using's financial calculator.

  1. Head over to with this link (it will open in a separate tab) and begin with the “FV” (Future Value) tab selected.
  2. Type the following values into the calculator:
    • N (# of periods): 35
      • (this is the number of years from today)
    • Start Principal: $75,000
      • (this is your desired retirement income stated in today's dollars)
    • I/Y (Interest): 2.5%
      • (this is the estimated annual rate of inflation)
    • PMT (Annuity Payment): $0
      • (this value is irrelevant for this calculation, thus we enter $0. This value would allow us to calculate total savings if we contributed “$X.XX” to the starting $75k)
    • Select the option for PMT made at the “beginning” of each compound period
  3. Press “Calculate” and your results will show to the right of the calculator. It should show FV (Future Value) calculated as $177,990.39.

This means that in 35 years from today, $177,990.39 will be worth what $75,000 is worth today assuming an average of 2.5% annual inflation. So, in order to plan for a retirement with an equivalent income of $75,000 annually today, we need to plan to save enough to live on $177,990.39 per year when we retire.

Step 3: Using “The 4% Rule,” Calculate The Total Retirement Savings Amount Needed

Now that we know how much money we need in 35 years to have an equivalent income to $75,000 today, we can calculate the total amount we need to save up in order to retire.

You may have heard of “The 4% Rule” which is a simple rule of thumb used to calculate how much money you can withdrawal in retirement in order to ensure your life expectancy outlasts your retirement savings. By only taking out 4% of your total retirement savings each year, you can assume that your invested money will hopefully get an average return of 4% or greater to maintain your retirement balance. If not (which is very unlikely), you have enough retirement savings to last you 25 years.

With this rule, we can calculate how much we need to save for retirement by simply multiplying our annual retirement income by 25 years (or, you can divide it by 4%, either way works the same).

In our example, we now know our retirement income in 35 years will be $177,990.39 (which is the equivalent of $75,000 today), multiplied by 25 years. Thus, our total amount needed for retirement is $4,449,759.75. It is calculated as follows:

  • $177,990.39 x 25 years = $4,449,759.75 needed to retire

Sound intimidating? Do you see the importance of starting to save for retirement as early as possible? Thankfully, we have compound interest on our side which makes the savings process much easier than it looks. Here's how…

Compound Interest Makes Saving For Retirement Much Easier…

You might be thinking “I need $4,449,759.75 to retire, and I have 35 years to save, that means I need to save $127,135.99 per year! IMPOSSIBLE!”

And frankly, if that were the case, I totally agree! However, with the magic of compound interest, your annual savings rate becomes much more attainable (although still slightly intimidating…further proving the fact that the earlier you start saving, the better).

Compound interest is a term used to describe the math behind getting paid interest upon interest. When you save $100 and expect a 10% return in year 1, at the end of the year you will have $110. If you expect 10% return again in year 2, you now get 10% of $110 rather than $100. Each year “compounds” upon the previous interest earned, creating an exponential savings growth over time.

How To Calculate Annual Savings Needed With Compound Interest Growth

Using the same calculator at, we can determine how much money we need to save given an estimated annual investment rate of return. For sake of this explanation, we will assume a 10% annual investment rate of return, which is not unheard of by any means. Here's how to calculate your annual savings needed to save $4,449,759.75 in 35 years, with an investment return of 10% each year.

  1. Head back over to with this link (again, it will open in a separate window) and select the “PMT” tab which should be right next to the FV tab we used previously.
  2. Type in the following values into the calculator:
    • FV (Future Value): $4,449,759.75
      • This is the total amount we need to save for retirement.
    • N (# of periods): 35 years
      • This is the amount of time we have to save for retirement.
    • Start Principal: $0
      • This is your current retirement savings already saved. For this example we will use $0 saved to simplify our conversation. However, you can type in an amount you have already set aside to customize it to your plan.
    • I/Y (Interest): 10%
      • This is our estimated average annual return on investment.
    • Select the option for PMT made at the “beginning” of each compound period.
  3. Press “Calculate” to get the results in the grid to the right of the calculator. Your answer should show $14,925.72 in the grid to the right of the calculator.

Under the row that shows “PMT (Periodic Payment)” in the graph to the right of the calculator, you will see your needed annual savings to reach your retirement savings goal, which is $14,925.72 saved annually. Much more doable!

Start Saving For Retirement …. Yesterday!

As you can see, our best friend when saving for retirement is time. Perhaps some of you reading this don't have much time left. That's ok! Regardless, the best thing you can do is start saving as much as you can as fast as you can.

Using different ways to make extra money, save extra money and invest your money wisely you can accelerate your retirement savings. Wherever you are currently, begin saving even just a little to get the habit ingrained and the compound interest working for you. As your financial scenario changes, it's not uncommon to have a savings plan that increases year over year as you make more money.