How Much Do You Need to Retire?

Will you have enough to retire? If you can't answer that question, you're in good company. Just 46 percent of U.S. workers say they have tried to calculate how much they need to save for a comfortable retirement.

Why is that? For some, retirement seems simply too far away, so why even bother thinking about it. For others, they simply don't know how to go about calculating their future financial needs, or they're intimated by the math. But calculating an approximate retirement number of how much you'll need to have saved for retirement is actually pretty easy and doesn't take long to do. Here's a quick, simple three-step approach that can help you find your magic retirement number.

Estimate Expenses
The first step is the trickiest – estimating your future retirement expenses. If you want a quick ballpark estimate, figure around 75 to 85 percent of your current gross income. That's what most people find they need to maintain their current lifestyle in retirement.

If you want a more precise estimate, track your current expenses on a worksheet and deduct any costs you expect to go away or decline when you retire, and add whatever new ones you anticipate.

Costs you can scratch off your list include work related expenses like commuting or lunches out, as well as the amount you're socking away for retirement. You may also be able to deduct your mortgage if you expect to have it paid off by retirement, and your kids college expenses. Your income taxes should also be less.

On the other hand, some costs will probably go up when you retire, like health care, and depending on your interests you may spend a lot more on travel, golf or other hobbies. And, if you're going to be retired for 20 or 30 years you also need to factor in the occasional big budget items like a new roof, furnace or car.

Tally Income
Step two is to calculate your retirement income. If you contribute to Social Security, estimate how much your monthly benefit will be at the age you want to retire. You can get a personalized estimate at www.ssa.gov/estimator. If you're married, remember to count your spouse's benefits too.

In addition to Social Security, if you have a traditional pension plan from an employer, find out from the plan administrator how much you are likely to get when you retire. And, figure in any other income from other sources you expect to have, such as rental properties, part-time work, etc.

Calculate the Difference
The final step is to do the math. Subtract your annual expenses from your annual income. If your income alone can cover your bills, you're all set. If not, you'll need to tap your savings, including your 401(k) plans, IRAs, or other investments to make up the difference.

So, let's say for example you need around $45,000 a year for retirement and you expect to receive $25,000 a year from Social Security and other income. That leaves a $20,000 shortfall that you'll need to pull from your nest egg each year ($45,000 – $25,000 = $20,000). Multiply your shortfall by 25, and that's how much you'll need to have saved.

In the case above, you would multiply $20,000 by 25 and come up with $500,000.

Why 25? Because that would allow you to pull 4 percent a year from your savings, which is a safe withdrawal strategy that in most cases will let your money last as long as you do – at least 30 years.

If you find that your savings are lacking, you might want to go back to your worksheet and cut some costs. Or, you may need to consider part-time work during retirement or postponing retirement so you can boost your savings.

Savvy Tip: If you need help figuring out how much you'll need to retire, there's a variety of free online calculators that can assist you. Some top tools are offered by Analyze Now, T. Rowe Price and AARP.