How Much Do You Need to Retire?

Tips on how much you should have in savings for retirement.

by Spero Financial

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As you look toward retirement and the days when traveling to see grandkids or deciding to work in the garden is the hardest decision you have to make for the day, it can be exciting.

However, without proper planning, retirement can take on its own challenges, so it’s important that you focus on building up savings for that time while you have the income to do so. In this post, we’ll break down why, how, and how much you should be saving for retirement to make those years everything you want them to be.

Why save for retirement?

There are a number of reasons to save for retirement, even far beyond just having income during your golden years. While many will have Social Security, it’s important to realize early on that that amount is only equivalent to around 40 percent of your salary — and there are concerns about benefits being trimmed back in the future. In contrast, the Social Security Administration claims you’ll need to cover around 70 percent of your pre-retirement income. To make up the difference, you’ll want to have a solid amount of money in savings to supplement that governmental benefit.

In addition, it’s important to realize that there are other benefits to saving for retirement. By putting tax-deferred money into a retirement account you can save thousands of dollars in taxes as your savings accumulate over time.

How much should I save up for retirement?

While the standard advice from the Social Security Administration says you should try to replace between 70 and 90 percent of your current income, other suggestions are all over the place. Yes, we know… so helpful, right! But generally, a retirement savings formula can be calculated using the following information:

  • How long you have to save until retirement
  • How many years of retirement you are planning for
  • How much you currently make
  • How much income you will need during retirement
  • Inflation (around 3 percent)
  • Rate of investment return prior to retirement (around 6 percent)
  • Rate of investment return during retirement (around 5 percent)

Still, these calculations can be complicated, so it’s far easier to use a retirement calculator to run the actual numbers and see how far you still need to go.

How should I save money for retirement?

There are a number of plans to help you save money for retirement, even beyond the standard low-interest bearing savings account. Here are some ways you can start saving today. As a reminder, Spero Financial does not give tax advice, so it is best to consult a tax advisor or financial planner to get a deeper understanding of tax implications for each of these accounts.

General Savings

A basic savings account can work for retirement savings, but it doesn’t offer growth outside of interest rates (typically only 0.01-0.02%), and your deposits have already been taxed. The upside, however, is that in times of an emergency, you typically have access to that money without penalties.

Employer Plans

  • 401(k): A 401(k) is an employer-provided retirement plan, where your financial input is taken from your pre-tax salary, and if your company happens to have a matching plan, it’s worth taking advantage of to double your impact. Another option is a Solo 401 (k), available to sole proprietors or business owners without any other employees.
  • 403(b): Similar to a 401(k), a 403(b) plan is simply for employees of non-profit organizations. Just like a 401(k), the employer funds savings out of salary deductions, and savings grow tax-free until withdrawn.
  • 457(b): A 457(b) is just like the 401(k) and 403(b), except it is the plan available to state and local government employees.


In contrast to the above plans, where deposits are made pre-taxed but taxed on withdrawal, some IRA plans are just the opposite — made with income that has already been taxed, but there are no additional taxes due upon withdrawal. There are several types of IRAs:

  • Roth IRA: The most common type of IRA, a Roth IRA allows you to place earned income — up to $6,000 per year for 2021 — into the account, which is invested in a traditional investment structure. Because a Roth IRA is funded with after tax dollars (funds that have already been subject to tax) there are no additional penalties when you withdraw.
  • Self-directed IRA: Similar to a Roth IRA, the main difference is that in a self-directed IRA, the investor can choose alternative investments such as cryptocurrency or real estate.
  • SIMPLE IRA: Created for small businesses with 100 or fewer employees, a SIMPLE IRA, allows you to contribute up to $13,500 in 2021. Similar to a 401(k), contributions are deducted from taxable income, but are subject to taxes upon withdrawal.
  • SEP IRA: A SEP IRA, or Simplified Employee Pension IRA, is great for self-employed persons or small business owners with several employees, in which they may deposit up to the lesser amount of either 25% of their total compensation or $58,000.


While it’s not your typical plan that covers all the varying costs of retirement, a health savings account is helpful to cover health costs during retirement — one of the larger costs associated with age. An HSA requires having a high-deductible health insurance plan, and can be used tax-free to cover qualifying medical expenses.

At Spero, we’re here to help you get your financial plan in order — for now or even for your retirement years. However we can support you as you make financial plans for the future, we’d love to help you get started today. Call us or come in to one of our convenient branches.

This material is for educational purposes only and is not intended to provide specific advice or recommendations for any individual.

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