Retirement Planning Guide: How Much Do You Need to Save?

Retirement planning can feel overwhelming, but it is one of the most important financial undertakings of your life. The decisions you make today — how much to save, where to invest, and when to retire — will determine your quality of life for decades after you stop working. This guide provides a practical, step-by-step approach to retirement planning, helping you determine how much you need to save and the best strategies for getting there.

How Much Do You Need to Save?

The most common rule of thumb is that you will need approximately 80% of your pre-retirement income to maintain your standard of living in retirement. However, this is just a starting point. Your actual needs depend on several factors: your desired retirement lifestyle, expected healthcare costs, housing situation, travel plans, and whether you plan to work part-time. Some retirees find they need only 60-70% of their pre-retirement income, while others — particularly those who want to travel extensively or have significant healthcare needs — may need 90-100% or more.

Savings Targets by Age

Fidelity Investments recommends the following retirement savings milestones based on your annual salary:

If your annual salary is $75,000, for example, you should aim to have approximately $750,000 saved by age 67. While these numbers can seem daunting, starting early and investing consistently makes them achievable for most people. The key is to begin saving as soon as possible and increase your contributions over time.

Retirement Account Options

Understanding the different types of retirement accounts is essential for building an effective savings strategy. Each account type has unique tax advantages, contribution limits, and withdrawal rules that affect how much you can save and when you can access your money.

401(k) Plans

A 401(k) is an employer-sponsored retirement plan that allows you to contribute pre-tax dollars directly from your paycheck. For 2025, the contribution limit is $23,500, with an additional $7,500 catch-up contribution for those age 50 and older (totaling $31,000). Many employers offer matching contributions, which is essentially free money — if your employer matches 50% of contributions up to 6% of your salary, that is an immediate 3% return on your money. Always contribute at least enough to capture the full employer match.

Individual Retirement Accounts (IRAs)

IRAs come in two main varieties. A Traditional IRA allows tax-deductible contributions (subject to income limits if covered by an employer plan), with taxes deferred until withdrawal in retirement. For 2025, the contribution limit is $7,000 ($8,000 with catch-up). A Roth IRA accepts after-tax contributions, but all growth and withdrawals in retirement are completely tax-free. Roth IRAs have income limits for direct contributions ($150,000-$160,000 for single filers and $236,000-$246,000 for married filing jointly in 2025).

Social Security Planning

Social Security provides a foundation of retirement income, but it was never designed to be your sole source. The average Social Security benefit in 2025 is approximately $1,900 per month, and the maximum benefit for someone claiming at full retirement age is about $4,873 per month. Your benefit amount depends on your 35 highest-earning years and the age at which you begin claiming. You can claim as early as age 62 (with reduced benefits) or delay until age 70 (with increased benefits).

Claiming at 62 reduces your benefit by about 30% compared to claiming at your full retirement age (67 for those born in 1960 or later). Delaying past full retirement age increases your benefit by about 8% per year until age 70. For each year you delay beyond your full retirement age, your benefit grows by 8% — a guaranteed return that is hard to beat with any investment. However, the breakeven point where delayed claiming catches up with early claiming is typically in your early to mid-80s, so your health and family longevity should factor into this decision.

The 4% Rule and Withdrawal Strategy

The 4% rule is a widely used guideline for retirement withdrawals. It suggests that you can safely withdraw 4% of your retirement portfolio in the first year of retirement, then adjust that amount for inflation each subsequent year, with a high probability of not running out of money over a 30-year retirement. For example, if you have a $1 million portfolio, the 4% rule suggests you can safely withdraw $40,000 in your first year of retirement.

While the 4% rule is a useful starting point, many financial advisors now recommend a more flexible approach of 3-3.5% given current low interest rates and longer life expectancies. You should also consider the sequence of returns risk — the danger of experiencing poor investment returns early in retirement, which can significantly deplete your portfolio.

To create a personalized retirement plan, use our retirement calculator to model different savings scenarios and see if you are on track. Our 401(k) calculator and IRA calculator can help you project the growth of your retirement accounts, while our inflation calculator shows how purchasing power erosion might affect your retirement income needs.