How Much Do You Need Saved to Get $10K a Month in Retirement Income?
Key Points
A retirement income of $120,000 would be a generous income for most seniors.
Investing enough to produce $120,000 in income may be within reach, especially if you start early.
You need to set a savings goal based on a safe withdrawal rate to avoid draining your accounts too fast.
- The $23,760 Social Security bonus most retirees completely overlook ›
Deciding how much to save for retirement can be complicated. However, if you have an income goal in mind, you can work backward from there and make an informed choice about the amount of savings you need.
For example, if you're hoping to have $10,000 a month in retirement income, this is the amount you'd need to make that happen.
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This is the account balance you need for a $10,000 monthly retirement income
Your withdrawal rate and your account balance are the two determining factors affecting whether you can collect $10,000 per month in retirement income. You can't take too much from your retirement plans too soon, so you need enough invested that you can safely withdraw $10,000 per month.
There are many ways to determine a safe withdrawal rate. One simple option is to use the 4% rule to guide your withdrawals. This rule requires you to limit your withdrawals to 4% of your portfolio balance in the first year of retirement, while making annual inflation-based adjustments to your withdrawals in subsequent years.
If you decide to adopt this rule, generating $10,000 per month in retirement income would require you to have $3 million in any combination of your 401(k), IRA, Roth accounts, or other investment accounts that you can draw from to support yourself as a retiree.
Knowing this gives you a pretty clear indicator of how much you need to save in total. You can use an online calculator, like the one at Investor.gov, to figure out how much to save each month to hit your $3 million, as the amount will vary based on your projected returns and the age when you start saving.
How to save enough to generate $10,000 per month in retirement income
The best way to end up with $3 million by retirement is to start early, as that will have a dramatic impact on the amount you need to invest.
If you start saving and investing at 30 and earn a 10% average annual return, for example, you can hit your $3 million target by saving $757.49 each month, assuming you plan to retire at 67. But if you don't start until 50, the number becomes a much more difficult $6,166.03 per month.
Automating investments is also helpful, as it can be much easier to be consistent in investing if you pay yourself first and make investing automatic. Choosing the right mix of investments that exposes you to an appropriate level of risk, and choosing reliable investments that you're likely to hold for the long term, can also help.
By taking these steps, you can hopefully end up with your $3 million so you can meet your $10,000 a month goal and have the retirement security you've been hoping for.
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