How Much Should I Have For Retirement? Amounts Explained

How much you should have in your retirement savings accounts depends on many intricate factors.

For example, how early do you want to retire? How much do you currently have in your retirement account?

Moving on, what is your pre-retirement annual income? Do you plan to have a small job in the future, or will you rely solely on your passive income?

This post delves deep and answers most of the questions you may have about retirement spending.

It also proposes a suggested plan that can show you how the numbers work in practice.

Key Takeaways

The amount of money you need to retire depends on your yearly financial needs, age of retirement, and duration of the retirement plan.
Various factors affect how much you save, like the inflation rate, investment ROI, and expected losses.
Financial advisors can help you adjust your current retirement savings plan based on your individual circumstances so you can meet your retirement needs.

Table of Contents

When Should You Retire?

According to Forbes, the average retirement age in the United States is 65 years old.

However, a lesser-known fact is that retirement is about money more than about age.

Reaching 65 years old without a strong portfolio that can cover your expected expenses means you won’t have enough for a comfortable retirement, even with social security benefits or retirement income.

Conversely, having enough money to generate a decent average per year that can cover your expected income at age 50 means you can retire early.

So, the question isn’t when you should retire; it’s how much money you should make within a projected timeframe to have enough for retirement.

To answer that question, you should know how to calculate the amount of money you’ll need before you can have a decent retirement sum.

Additionally, to make that calculation, you should first decide how much you are willing to spend per year.

Let’s put this into simple words before we get into the complex details.

If you plan for a 30-year retirement plan, and you’re expected to spend $60,000 a year, then your portfolio should comfortably generate $60,000 a year without putting you at risk of running out.

How Much Should You Have for Retirement?

Calculating your retirement sum depends on the following:

How much will you withdraw from your portfolio per year
How long your retirement plan will be
How much money do you have per given age

In the 1990s, Trinity University professors of finance Philip L. Cooley, Carl M. Hubbard, and Daniel T. Walz conducted a study on retirement savings plans.

The study discussed portfolio success rates over retirement plans of 15, 20, 25, and 30 years and contained results based on withdrawal rates, ranging from 3% to 12%.

It included the following table:

Withdrawal Rate as a % of Initial Portfolio Value

Payout Period	3%	4%	5%	6%	7%	8%	9%	10%	11%	12%
100% Stocks
15 Years	100	100	100	91	79	70	63	55	43	34
20 Years	100	100	88	75	63	53	43	33	29	24
25 Years	100	100	87	70	59	46	35	30	26	20
30 Years	100	95	85	68	59	41	34	34	27	15
75% Stocks/25% Bonds
15 Years	100	100	100	95	82	68	64	46	36	27
20 Years	100	100	90	75	61	51	37	27	20	12
25 Years	100	100	85	65	50	37	30	22	7	2
30 Years	100	98	83	68	49	34	22	7	2	0
50% Stocks/50% Bonds
15 Years	100	100	100	93	79	64	50	32	23	13
20 Years	100	100	90	75	55	33	22	10	0	0
25 Years	100	100	80	57	37	20	7	0	0	0
30 Years	100	95	76	51	17	5	0	0	0	0
25% Stocks/75% Bonds
15 Years	100	100	100	89	70	50	32	18	13	7
20 Years	100	100	82	47	31	16	8	4	0	0
25 Years	100	93	48	24	15	4	2	0	0	0
30 Years	100	71	27	20	5	0	0	0	0	0
100% Bonds
15 Years	100	100	100	71	39	21	18	16	14	9
20 Years	100	90	47	20	14	12	10	2	0	0
25 Years	100	46	17	15	11	2	0	0	0	0
30 Years	80	20	17	12	0	0	0	0	0	0

Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable

Regardless of the duration of the retirement plan, a 3% annual withdrawal rate is the safest option.

However, it may not translate into a decent sum if your portfolio isn’t that large, which is why some people may go for 4% or even 5%.

Some people may even make the mistake of spending whatever their portfolio makes per year.

On paper, this may seem like a great idea that saves you a lot of planning.

Still, what do you think will happen if your portfolio loses 10% in the following year? What about inflation rates and market fluctuations?

You may have enough to cover for that in the first year, but what if you were unlucky enough to have several of these pitfalls early on?

It can jeopardize your entire retirement plan or even force you to work beyond retirement age to make up the difference.

The Rule of Thumb

Quick disclaimer: everything we’ll discuss from now on focuses on a 30-year retirement plan.

What we may label as a risk in such a plan can be perfectly safe for a 15-year retirement plan, so use the table above to help you decide.

That being said, unless you have an exceptionally strong portfolio, you should keep your withdrawal rate in the 3%–5% range.

Also, if you don’t have a side gig that brings money, we recommend against 5% on long-term plans, as you’ll run out of money more than 50% of the time.

If you’ve previously read about finances and investment, you may already know about the 4% rule, which is sometimes mistakenly thought of always withdrawing 4% as it’s the best middle ground.

In reality, this rule is there to help you decide how much you need to retire, not how much you should spend.

For example, let’s assume that you’re comfortable with $90,000 a year.

We’ll then consider that $90,000 is the 4% of the nest egg, which should equal, in this example, $2,250,000 (90,000 x 100 / 4).

Note: the 4% rule is a simplified starting point. It assumes a 4% withdrawal rate and a 30-year retirement period.

However, realistically, factors like inflation and investment returns can impact your retirement needs, which is why consulting a financial advisor can be exceptionally helpful.

How to Save Up to Reach Your Goal

We’ll try to maintain the numbers and assume that you’ve settled on a maximum of $90,000 per year (4%).

Given that most physicians are burdened with student debts, it’s unlikely they’ll have any real savings before the age of 35, so we’ll start there with zero savings.

We’ll also assume that you’re retiring at the average age in the U.S. (65 years old), and setting a retirement nest egg is $2,250,000.

To sum up, our criteria are as follows:

You have $0 at 35 years old.
You want to retire at 65 years old.
You need a nest egg of $2,250,000 so you can safely withdraw up to $90,000 for the first few years of your retirement with little to no risk.

First, we need to calculate how much you need to save each year to reach $2,250,000 by age 65, starting from $0 at age 35.

We’ll use the formula FV = PMT * n where:

FV = Future Value ($2,250,000)
PMT = Annual Payment (what we’re solving for)
n = number of years (which is 65-35 = 30)

Substituting in our equation:

$2,250,000 = PMT * 30
PMT = $2,250,000 / 30
PMT = $75,000

So, you need to save $75,000 a year to have $2,250,000 when you’re 65 years old.

Here’s a demonstrative table to show how much you’ll have every five years:

Age	Savings
35	$0
40	$375,000
45	$750,000
50	$1,125,000
55	$1,500,000
60	$1,875,000
65	$2,250,000

The aforementioned data is the most basic calculation; it tells us two things.

First, saving $75,000 a year feels like a scary task, even as a doctor.

According to the 2024 Physician Compensation Report, the average physician salary ranges between $306,000 and $388,000.

The number may seem comfortably high, and it can go even higher for specialists.

However, you have basic life costs, student loans, various types of insurance, and many more expenses to worry about.

Second, the calculation doesn’t take into account inflation rates or any investments, which can considerably change how much you need to save per year.

We’ll throw in another calculation that includes the average inflation rate and a hypothetical investment. Let’s see how the results change.

A More Realistic Plan to Save Money for Retirement

Let’s consider that all our previous factors are still the same, but also add the average long-term inflation rate in the US to the calculation.

Plus, we’ll add an investment of an average ROI of 7% per year. So, the additional factors are:

You have an investment with a yearly average return on investment of 7%
The average long-term inflation rate (3.28%).

To do that, we’ll use the compound interest formula FV = PMT * ((1 + r)^n – 1) / r, where:

FV = Future Value ($2,250,000)
PMT = Annual Payment (what we’re solving for)
r = Annual interest rate
n = number of years added into retirement (which is 65-35 = 30)

Substituting in our equation:

$2,250,000 = PMT * ((1 + 0.07) ^ 30 – 1) / 0.07
$2,250,000 = PMT * (7.6123 – 1) / 0.07
$2,250,000 = PMT * 94.4614
PMT = $2,250,000 / 94.4614
PMT = $23,819.46

We’re down from $75,000 per year to $23,819.46, which may seem strange or surprisingly low.

After all, if you multiply that by 30 (the number of years), you’ll get $714,583.8, which is far lower than the target of $2,250,000.

However, you’d be missing the compound effect achieved by the 7% ROI.

When the compound effect is added to the formula, the first year will yield the basic $23,819.46.

However, instead of simply doubling that amount in the second year, adding 7% to that number will yield $49,306.99 in the second year.

Here’s how:

Year 2: $23,819.46 + ($23,819.46 * 1.07).
Year 3: $49,306.99 * 1.07 + $23,819.46 = $76,597.94, and so on.

Here’s how much you should save based on this calculation:

Age	Savings
35	$0
40	$141,349
45	$329,483
50	$573,860
55	$884,992
60	$1,275,959
65	$2,250,000

Keep in mind that this table isn’t complete, as it doesn’t consider the purchasing power of today’s dollars 30 years ahead after possible inflation.

The effect of inflation is quite significant.

At an inflation rate of 3.28%, your $2,250,000 will have a purchasing power of only about $876,000 in today’s dollars by age 65.

Don’t worry, though; the plan suggested above will still give you the same purchasing power of $2,250,000 but in significantly higher numbers in your retirement accounts.

In other words, you won’t save $2,250,000; you’ll save $5,778,750 because your ROI is higher than the inflation rate.

Here’s the adjusted table:

Age	Savings
35	$0
40	$440,591
45	$1,031,183
50	$1,808,505
55	$2,817,633
60	$4,118,793
65	$5,778,750

Leave it to the Professionals

Even if you’re a math and accounting enthusiast, you can probably tell how meticulous and intensive the retirement planning process is and how a single mistake can ruin your entire plan.

Additionally, we haven’t even factored in other real-life variables.

For example, the inflation rate may suddenly jump higher than 3.28%.

Another example of a possible oversight is that your investment may not always yield an average of 7% every year, or you may suddenly be required to pay a large sum of money for any reason.

There are also employer contributions in retirement plans like 401(k), income taxes, and a lot more that you can hardly learn about all by yourself

In short, this isn’t a plan you put down once and leave it to do its magic.

A tremendous amount of fine-tuning and adjusting will be needed as you go, and that’s why you need the help of someone who knows what they’re doing.

That’s one of the reasons why Physician’s Thrive exists.

In addition to all the details mentioned above, we factor in your student loans, various types of insurance, tax planning, and even the cost of a private practice startup in the long run.

Since Physician’s Thrive is run by doctors, you’ll find no better partner who’ll understand every pitfall you may fall in and prepare you beforehand.