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I spent decades in the retirement industry researching and reporting on how much people need to save for retirement. It was the first — and most common — question people asked.
Then I retired in 2021. Five years later, I’ve realized that’s not the question with which to start.
“How much do I need to save?” is a reasonable question, and it should be asked. But focusing on a savings target puts the focus solely on accumulation, when the challenge for most retirees is decumulation.
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Currently, there’s a disconnect. Research says people won’t have enough, while retirees say they’re going to be fine.
Both can’t be right — can they?
- The Center for Retirement Research at Boston College reports that 39% of today’s working-age households will not be able to maintain their standard of living in retirement.
- The gold standard for retirement confidence — the annual Retirement Confidence Survey conducted by the Employee Benefit Research Institute — tells a strikingly different story. The 2025 survey found 78% of retirees are confident they’ll have enough money to live comfortably throughout retirement.
- Similarly, a recent Transamerica study found that 85% of retirees indicated that their standard of living has remained the same (66%) or improved (19%).
Which is it? It’s both. People might not have enough saved by industry standards, but those standards could overstate what most households need.
The commonly used 85% income replacement rate could be higher than necessary for people who have a lot of competing financial priorities preretirement and resolve them before they retire.
This is why confident retirees and worried researchers can both be telling the truth. That insight changes the order of the questions.
Instead of first asking, “How much will I need?” ask yourself, “How much will I spend?” While income replacement ratios can be a good starting point, as preretirees get closer to retirement, getting specific on retirement income needs is critical.
Developing a clear retirement budget is key, not based on prior earnings, but on retirement expenses and anticipated lifestyle. Once you know that, the savings target becomes clear and purposeful.
Same savings, three different retirements
Consider a married couple — let’s call them Pat and Chris — who have combined savings of $850,000. They’re both age 65 and just retired to Florida. Chris has $500,000 in a 401(k); Pat has $350,000 in an IRA. They’ll each collect about $2,050 per month in Social Security ($4,100 monthly, or $49,200 annually) and both plan to claim at 65. By most industry measures, they’re in better shape than most Americans — $850,000 is a lot of money.
But are they in good shape? That depends almost entirely on one number: their annual spending in retirement.
To see how much spending matters, I stress-tested three scenarios using Monte Carlo analysis. Assuming a real rate of return of 5% annually (7.55% nominal and 2.55% inflation rate), a blended federal effective tax rate, Social Security claimed at 65, when they become Medicare-eligible and a planning age of 94, here are the results:
- At $80,000 a year (including Social Security), they’ll have roughly $2.3 million at age 94. They end up with significantly more than they started with.
- At $95,000 a year, they’ll have around $560,000 at age 94. Spending $15,000 more per year costs them $1.7 million over their lifetimes — and leaves them vulnerable. One market downturn, one health event or one longer-than-expected life could erase it. Combine two of those factors, and the picture gets worse, fast.
- At $115,000 a year, the money runs out at age 82. They’ll potentially live their final years on Social Security alone.
Same savings, same Social Security, three radically different retirements — determined not by what they accumulated, but by what they spent.
What you can control
The common assumption that retirees need roughly 85% of their preretirement income is a reasonable starting point — but as my own experience shows, many households land well below it without sacrificing quality of life.
Spending less doesn’t have to mean living worse.
The fundamental question — what will you spend annually in retirement? — is the number that should drive your plan. It’s the one number you can control. You can’t control the stock market, your investment returns, interest rates, tax rates, your pension, Social Security payments or your lifespan.
When I retired in December 2021, the market was at an all-time high. By the end of 2022, it had fallen 18%— a new retiree’s worst fear coming to life.
What did I do? I adjusted my spending and my plans. We traveled less and ate in more. My nest egg has swung in both directions since. I manage market volatility through my asset allocation, but I can’t control the market. What I can control is my spending.
Find your annual retirement spend
Start with your current annual spending — not your income, your actual outflow.
Subtract what disappears in retirement — commute and parking, work wardrobe, retirement savings, college tuition if you’re helping your kids and your mortgage or other debt if you plan to pay it off before retirement. If you plan to downsize, factor that in, too — a smaller home can reduce or eliminate the mortgage, and if the current one has appreciated, the difference can be used to help fund your retirement.
Add what grows: travel, hobbies and healthcare, especially if you retire before age 65 and aren’t eligible for Medicare.
What you’re left with is a working baseline, not a forecast. Revisit it every year. Mine has shifted more than once, and that’s the point: The spending number is the lever you can control.
What my experience has taught me is simple: The first question should be “How much will you spend annually in retirement?”
Answer that, and you can determine how much you need to save. Get the spending number right, and you’ll build a retirement that lasts a lifetime.
