Retirement savings target
Last updated: 2026-08-14
Retirement targets are usually built backwards from income. Want $60,000 a year and assume you can withdraw 4% annually, and the target is $1.5 million — the income divided by the withdrawal rate.
Then inflation enters. If retirement is 25 years away and prices rise 3% a year, the equivalent of today's $60,000 is about $125,600, and the target becomes roughly $3.1 million.
Two numbers doing the work
| Assumption | Effect on the target |
|---|---|
| $60,000 income, 4% withdrawal | $1,500,000 |
| Same, 3% withdrawal | $2,000,000 |
| $60,000 inflated 25 yrs at 3% | $125,600 income |
| Inflated income at 4% | ≈$3,140,000 |
Neither the withdrawal rate nor the inflation rate is knowable in advance, and moving either by a single percentage point changes the target by hundreds of thousands. That is not a flaw in the arithmetic — it is the honest shape of the problem.
Why years remaining dominate
With thirty years to go, existing savings and new contributions both have time to compound, and the contribution rate can be moderate. With ten years, compounding has far less to work with and the outcome depends much more on how much you can put in and what you already hold.
This is why the same shortfall has completely different answers at 35 and at 55. Early on, time can be substituted for money. Later it cannot.
What a target like this leaves out
A savings target of this kind ignores Social Security or state pensions, workplace pensions, tax treatment of withdrawals, healthcare costs, and any spending that changes through retirement rather than staying flat.
Most of those work in your favor, so the raw target is usually conservative. But it is conservative by an unknown amount, which is why it should inform a direction rather than settle a decision.
How to use the number
Treat it as a gap measurement rather than a verdict. The useful output is the difference between where current savings and contributions are heading and where the target sits, and how much that gap moves when you change one assumption.
Test a range. If the plan works at 5% real return and fails at 4%, it is not a plan, it is a hope with a spreadsheet attached.
Test your own assumptions
The retirement calculator compares current savings and future contributions against a target built from income, inflation and withdrawal assumptions. The investment return calculator models the contribution path in more detail.
Related reading: inflation and real returns and compound interest explained.
How the withdrawal rate changes the target
The pot you need is driven by the rate at which you plan to draw from it. Small changes in that assumption move the target a long way.
| Initial withdrawal rate | Pot required | Extra needed against 4% |
|---|---|---|
| 3.0% | $2,000,000 | +$500,000 |
| 3.5% | $1,714,000 | +$214,000 |
| 4.0% | $1,500,000 | Baseline |
| 5.0% | $1,200,000 | −$300,000 |
Dropping the assumed withdrawal rate from four per cent to three raises the required pot by half a million dollars. The rate is an assumption about safety, and safety is expensive.
Common questions
How much do I actually need?
It depends on the spending you want to fund, not on a universal multiple of salary. Start from annual spending in retirement, subtract expected pension and social security, and size the pot against the remainder.
What is the four per cent rule?
A planning heuristic suggesting an initial withdrawal of four per cent of the pot, adjusted for inflation thereafter. It is a starting point derived from historical data, not a guarantee for any future period.
Does the target change if I retire earlier?
Substantially. Retiring earlier means fewer contributing years and more withdrawing years, so the required pot rises from both directions at once.
Should the target be in today's money?
Working in today's money is easier to reason about, provided the return assumption is real rather than nominal. Mixing a nominal return with a real target overstates the outcome.
Related reading
The rest of this series, and the calculators that let you run the idea on your own numbers.
More investing and retirement guides
Try it with your figures
See also all guides, every calculator, and the calculation methodology behind these estimates.