How Much Should You Save for Retirement? Use This Benchmark to Find Out

Planning for retirement often starts with one big question: How much do I need to save? While there’s no one-size-fits-all answer, a helpful benchmark is to look at your retirement income replacement rate—that is, the percentage of your current income you’ll need once you stop working.

The 75–80% Rule… and Why It’s Not Always Accurate

You’ve likely heard the common advice to aim to replace 75% to 80% of your current income in retirement. This rule of thumb is based on the idea that you’ll no longer be paying payroll taxes or saving for retirement, so you can live on less than your current gross income.

But according to a widely respected study by David Blanchett, PhD, CFA, CFP®, retirement income needs vary significantly. His research shows that income replacement rates actually range from 54% to 87%, depending on your personal circumstances.

For example:

Higher-income earners with strong savings habits might only need to replace 60% or less of their working income.

Lower-income households, who rely more heavily on Social Security and may not have significant savings, might need to replace closer to 90%.

Step-by-Step: Estimating Your Income Replacement Rate

1. Start with your net income – that’s your take-home pay after taxes and retirement contributions.

   
   

2. Subtract any retirement income you expect to receive from sources like Social Security, pensions, or rental income.

   
   

3. Divide that number by your current gross income (before taxes and savings). The result is your income replacement rate.

   
   

For example, if your net income is $60,000, and you expect $20,000 a year from Social Security, your gap is $40,000. If your gross salary is $100,000, your replacement rate is 40%.

Estimating How Much You’ll Need to Save

Now that you have your income replacement rate, apply the 4% safe withdrawal rule—a guideline that suggests you can withdraw 4% of your savings each year in retirement without running out of money.

Here’s how:

1. Multiply your current gross income by your income replacement rate

2. Divide that number by 0.04 (4%).

This gives you an estimated retirement savings goal.

Example:

• Gross income: $100,000

• Replacement rate: 70% → You’ll need $70,000 per year in retirement

• Required savings: $70,000 ÷ 0.04 = $1.75 million

  
  
  
  

Keep in Mind…

This approach provides a solid starting point, but your personal needs may vary based on your lifestyle, health, retirement age, and how long you expect your retirement to last. It’s always a good idea to revisit your plan regularly and adjust as your circumstances change.

Want to Dive Deeper on How to Save For Retirement?

If you're in your 40s or 50s and thinking ahead—or if you're already facing retirement head-on—there’s no better time to shape your next chapter with confidence.

Download Scripting a Flexible Plan for Your Retirement Readiness. It walks you through building your personal plan with clarity, resilience, and purpose—so you can retire on your terms, downturn or not.

In this eBook, you’ll learn:

• Three popular methods to figure out how much money you might need for a career downsize or retirement.  

• How a financial planner can help you determine with more clarity whether or not you're on track—and what to do about it if you're not. 

• Why it's ok to adjust your plan when life happens.

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To learn what it's like to work with a financial advisor as you're recovering from your divorce/thinking ahead to retirement/etc. etc., you can book a free call with Life Story Financial. 

For more personal finance tips, download my free ebook series that covers debt management, growing your income to save more, investing wisely and retirement planning.