Key Points
Finding cash to spare for your future might be the toughest part of retirement planning, but it’s only one piece of the puzzle. You also have to pick the right savings target, and that’s trickier than it looks. You don’t know exactly how long your retirement will last, or how much you’ll spend annually.
Some people fall back on round numbers, like $1 million, $2 million, or $3 million, as their goal. But many don’t understand what kind of retirement those nest eggs could actually give them.
How much you can spend annually with $1 million, $2 million, and $3 million nest eggs
The 4% rule is one of the most popular retirement withdrawal strategies. It says you can withdraw 4% of your savings in the first year of retirement. Then you adjust that amount annually for inflation. It’s supposed to help your savings last for at least 30 years.
If we apply this rule to a $1 million nest egg, we get an annual income of $40,000. For $2 million and $3 million, we double and triple that to get $80,000 and $120,000 per year, respectively. This gives you a rough baseline, but there are a few things to keep in mind.
First, inflation isn’t going away. You might think an $80,000 annual income sounds pretty comfortable today. But if you’re three decades away from retirement, you might be surprised by how little $80,000 covers by then. You may need to plan for a higher average income than you expect, even if you’re pretty frugal.
The other thing to remember is that you probably won’t have to cover all of your retirement expenses on your own. You’ll most likely have Social Security benefits to supplement your personal savings. The $2,083 average monthly benefit as of May 2026 would give you roughly $25,000 in additional income per year. However, Social Security is facing benefit cuts in six years, so it’s not clear right now how far your checks will go in the future.
How much should you aim for when saving for retirement?
Rather than focusing on an arbitrary savings goal, calculate how much you need to save based on the lifestyle you expect to have. Think about how much you plan to spend annually in retirement, and use that as your baseline. If you want to use the 4% rule, multiply your estimated annual spending by 25 to get your savings target. For example, if you want $100,000 per year in retirement, you’d need to save $2.5 million.
If you’re not sure you can save as much as you need to, do what you can right now. When you get a raise or find a better-paying position, increase your retirement contributions first and update your savings strategy.
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