Retirement Planning in 5 Steps: How Much Do You Really Need?
Estimate your retirement number, choose the right accounts, and calculate the monthly savings that get you there.
Key takeaways
- Estimate retirement spending first; your savings target follows from it.
- The 4% rule is a useful rough guide: target about 25× your annual spending gap.
- Starting early matters more than investing brilliantly.
- Use tax-advantaged accounts and capture any employer match first.
Step 1: Estimate retirement spending
A common starting point is 70–80% of your pre-retirement income, but spending-based estimates are better. Some costs fall (commuting, work clothing, mortgage if paid off); others rise (healthcare, travel). Write down what a normal retired year would cost in today's money.
Step 2: Subtract guaranteed income
Subtract pensions and government benefits (Social Security, CPP/OAS, EPF/EPS pension and similar). The remainder is the yearly gap your savings must fill.
Step 3: Turn the gap into a target
The "4% rule" comes from historical studies suggesting a balanced portfolio could support inflation-adjusted withdrawals of about 4% of the starting balance for around 30 years. Inverted, it says: target ≈ yearly gap × 25. A 40,000 yearly gap implies about 1,000,000. Longer retirements or more caution call for 3–3.5% (a multiple of roughly 28–33×).
Step 4: Choose the right accounts
- US: 401(k) with employer match, then IRA/Roth IRA.
- Canada: RRSP and TFSA, plus any workplace pension match.
- UK: workplace pension and SIPP, plus ISAs.
- India: EPF/VPF, PPF, NPS, and equity mutual funds via SIPs.
Tax rules change, so confirm current limits with official government sources or a licensed adviser.
Step 5: Calculate your monthly savings
Enter your age, savings and target into our retirement calculator. It projects your balance, adjusts for inflation and tells you the extra monthly amount needed to close any gap. Re-run it once a year.
The cost of waiting
At a 7% annual return, 300 a month from age 25 grows to roughly 790,000 by 65. Starting the same 300 a month at 35 reaches about 370,000 — less than half — despite only 25% fewer contributions. Compounding rewards time above everything else.
Watch: the 5-minute version
FAQ
Is the 4% rule still valid?
It's a reasonable planning heuristic, not a guarantee. Many planners use 3–4% depending on retirement length, fees, and flexibility to cut spending in bad years.
How much should I save for retirement each month?
Many plans target 10–15% of gross income, including employer contributions, starting in your 20s or early 30s. Starting later means a higher percentage.
What if I'm starting late?
Maximise tax-advantaged contributions, capture any employer match, consider working a few extra years, and reduce expenses — each lever compounds together.
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This guide is general education, not personal financial, tax or legal advice. Rules, rates and limits vary by country and change over time — confirm with official sources or a licensed professional.