When it comes time to retire, you'll want to make sure you have plenty of money in a 401(k) or a brokerage account. Social Security replaces about 40% of pre-retirement income, which just isn't enough in the majority of situations.
The exact amount you'll need will depend on your spending desires and your existing lifestyle. Many experts recommend you have around 10 times your final salary saved, but you may want more or less than this depending on whether you plan to be frugal or travel the world.
If you want your retirement accounts to produce $100,000 in income -- which is a pretty generous amount for most people -- this is the amount you would need to have invested in order to make that happen.
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Seek to invest this much
To figure out how much you must have invested in order to produce a certain income, you must consider your withdrawal rate. That's the rate at which you take money out of your account.
Remember, if you have money invested for your future, you don't want to take all of it out at once -- or even most of it. You need to leave a good amount invested to continue to earn returns so you don't just drain your account dry.
To make sure you don't run out of money, some experts recommend following the 4% rule. If you choose to listen to them, you'd withdraw 4% of your IRA or other retirement account balance the first year you leave work. Then, each year, you'd simply adjust your withdrawals to account for inflation.
The 4% rule isn't always perfect since it doesn't respond well to market fluctuations. But it's a good starting point to figure out how much you must have invested to produce $100,000 in retirement income (or any set amount of retirement income).
Basically, if you decide to follow this rule, you just multiply the amount of income you hope your retirement accounts produce for you each year by 25 -- and that's how big your account balance needs to be.
If you want $100,000, therefore, you'd multiply that amount by 25 to find out you need $2.5 million saved. That's a lot of money, but it's not necessarily out of reach if you start saving young and you're earning a good income throughout your career.
How to save enough for a secure future
If you want to save $2.5 million by the time you reach the age of 67, you have a lot of work to do.
The specific amount you must save will depend on your age and expected returns. The table below shows the monthly contributions to make to your retirement account to hit this target, assuming 10% average annual returns.
| If you invest for this many years | You must invest this much each month to end up with $2.5 million at 67 |
|---|---|
| 20 | $6,688 |
| 25 | $4,745 |
| 30 | $3,495 |
| 35 | $2,639 |
Data source: Author calculations.
This is undoubtedly a lot of money. But the good news is most people don't really need their investment accounts to produce $100,000 in income. You'll typically want to aim to replace about 70% to 80% of your salary in total upon retirement and, as mentioned above, Social Security replaces about 40% of it. So you need your investments to produce the other 40%.
Essentially, this means that the only way you'd really need $100,000 to come from your investment accounts is if you were making about $250,000 per year. At that income level, it wouldn't be beyond reach for you to invest around $4,100 per month -- especially if you took advantage of tax breaks for 401(k) contributions or received an employer match.
If you're not making near that much, consider how much income you will need to save for your own future by assuming you'll need to replace 40% of your earnings with your investment accounts and multiplying that amount by 25. If you discover you need $40,000 from investments, for example, your target goal should be around $1 million.
A calculator on Investor.gov can tell you the amount to invest each month to hit your personalized target based on years you have left to invest and expected returns. Once you've got the amount, set up automatic contributions to a 401(k) or IRA with your brokerage firm so you can ensure you stay on track and end up with an account balance that produces the retirement income you need.
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