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How Much Do You Need for Retirement? Look at Your Paycheck

June 14th, 2016 | 3 min. read

By Jacob Schroeder

What’s my number? How much should I save for retirement? How much retirement income will I need to generate from my assets?

These are all different iterations of the million-dollar retirement question. (For some retirees, $1 million is the actual answer!)

There are a variety of methods for determining how much you’ll need saved by your retirement date.

One general rule of thumb is to expect to live on 70-80% of your current income. This assumes you’ll likely have a lower tax bill and lower expenses as your children move out and you no longer commute to the office, among other things.

However, the definition of retirement has changed over the years. Many retirees these days lead lifestyles that are just as active as before retirement. They are starting new businesses or launching new careers. Some may need the same amount of income as they did before retirement while others need even more.

Therefore, the right answer depends on your personal needs, goals, and desired lifestyle.

Another method is to record and itemize every one of your expenses. Ideally, this will help you precisely determine how much money you need saved for retirement. But, it can be time-consuming and difficult to track every dollar you spend. To do it correctly, you would need to track all expenses for 12 months. If you make a mistake, you could overestimate or underestimate the amount you need.

Using your paycheck

Instead of spending the time and energy itemizing your individual expenses, you can simply take a look at your current monthly net income, or take-home pay. Consider this the amount you need from your retirement income sources – investments, Social Security, pension, etc.

From there you can calculate how much you need in total saved for retirement.

Basic Example:

Let’s say that you have an annual salary of $84,000, which equals $7,000 in gross monthly pay. Your net pay will be less retirement savings (we use 10%), federal taxes, state taxes (different in each state; we use 5% as a reasonable average) and other deductions (insurance, HSAs, etc.).


Pre-Retirement Income

Gross Monthly Pay




Federal Taxes


State Taxes


Other Deductions





In our example, your take home pay is $4,000. This is what you need to replace in retirement from your various income sources.

But, how much income will you need for a net $4,000 each month? Further, how much do you need from your retirement savings?

Consider that you will no longer be saving money for retirement. We also account $0 for “other deductions” since they may no longer apply to you in retirement. For simplicity, let’s assume your only other retirement income source is Social Security, with a monthly benefit of $1,500.

Retirement Income

Retirement Income Needed


Other deductions


State taxes


Federal taxes


Retirement savings


Gross Monthly Income


Social Security





Here, you will need to withdraw $2,800 each month from your portfolio. That’s $33,600 annually.

You can then use the “rule of 20” to determine your number:

$33,600 x 20 = $672,000

(The rule of 20 is general rule of thumb that states you should save $20 for every $1 you expect to spend in retirement. You can reasonably live off of this amount for around 25 years or more at a 4-5% withdrawal rate.)

In our example, based on your current net income you need to save a little more than $670,000 to live the life you’re accustomed to in retirement.

Again, this is a basic example. You may have to plan for large purchases in retirement, such as a vacation home, a new business, et al. Most important: the cost of health care. These costs, however, are personal and can be unpredictable. Using your paystub still allows you to create a realistic financial marker for your journey toward retirement.

You can get a more precise and detailed plan for how much to save for retirement by working with a financial adviser.  


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