How much wealth do you need when you retire? Probably more than you think. Most retirees spend anywhere from 60% to 125% of their current spending after they retire. Insurance and commuting costs might go down but vacations and other recreational expenses may go up. Assume, for example, that a family grosses $80,000 per year. After taxes and investments (including retirement plan contributions), that family might spend $50,000 per year. That’s a reasonable target for retirement spending.
How much of a nest egg will you need to throw off $50,000 per year in spending money, with increases for inflation? Mutual fund companies such as Vanguard and T. Rowe Price provide free programs you can use to do your own calculations. As a rule of thumb, if you’ll need to spend $50,000 per year in retirement, expect that you’ll have to accumulate upwards of $750,000 in a retirement portfolio. So start saving and investing.