We all strive for the ideal retirement nest egg, typically with one purpose: to afford the lifestyle we want in retirement while no longer having to earn an income.

But how can you determine your magic retirement number? And more importantly, what must your savings plan look like to reach your goals?

Though there are many factors when calculating your retirement goal and how you’ll achieve it, it doesn’t need to be overwhelming. Taking action to establish your financial security can be easy and worry-free.

In this article, we’ll explain how you can gauge your ideal retirement nest egg and the strategies you can use to reach your goal.

Two Key Strategies to Gauge Your Retirement Savings Needs

Before implementing a savings plan, you’ll have to determine how much money you should have saved by the time you retire. Here are two common approaches to understanding an appropriate savings target.

Income Multiple Approach

The income multiple approach suggests that by the time you retire, your portfolio should be approximately 10-12 times your final working year’s income.

This strategy assumes your living expenses in retirement will be roughly 80% of what they were during your working years since you will no longer be contributing toward retirement savings. It also assumes that large expenses such as your car or mortgage will be paid off, lowering your annual living expenses.

Sustainable Withdrawal Rate

Another common rule of thumb is to withdraw up to 4% of your starting portfolio in year one of retirement and adjust for inflation each subsequent year.

Once you determine your expected living expenses in retirement, you can calculate the total portfolio value which would make your annual expenses equal to 4% of your starting portfolio.

For example, if you anticipate needing $100,000 per year in retirement, your savings goal should be $100,000 / 0.04 = $2.5M.

Top Considerations for Your Retirement Savings

Your retirement savings goal is based on factors unique to you, including your expected lifestyle and how long you’ll need the funds to last. Here are the most common factors to consider:

Lifestyle: Your monthly expenses will be a key driver of your withdrawal needs in retirement. Consider what your post-retirement lifestyle will look like and what you expect to spend.

Inflation: Over time, inflation reduces the purchasing power of your savings. Keep in mind that what costs $1 today will likely cost more in the future. Your annual expenses will increase in the future due to inflation, all else being equal.

Retirement age: The earlier you retire, the more savings you will need, as your portfolio will need to sustain you for a longer period. Retiring at 60 will require more retirement funds than if you were to retire at 65 or 70.

Life expectancy: Nobody likes to estimate how long they’ll live, but this is necessary to consider in retirement. The number of years you expect to live on your retirement savings will impact how much you should have saved.

Other retirement income: Any additional income you may have during retirement can supplement your retirement savings. For example, if you plan to earn Social Security retirement income, you may not need to withdraw as much from your portfolio to cover your living expenses.

How to Save for Your Retirement Needs

After identifying how much you’ll need to save for retirement, it’s time to implement a savings strategy to reach your goals.

Savings Progress as a Multiple of Income

Measuring your portfolio as a multiple of your current income can help you track progress toward your retirement goals.

Some experts suggest the following progressive milestones:

· 1x your income by age 30

· 3x your income by age 40

· 6x your income by age 50

· 8x your income by age 60

· 10-12x your income by retirement age

If you follow the savings multiples strategy, these figures include your employer’s contributions to your retirement account, individual retirement accounts (IRAs), and any other savings vehicles you have set aside.

Save a Percentage of Your Income for Retirement

You can also set a savings rate as a percentage of your income, which is often considered roughly 10-15% of your gross income. As your income increases over time, so do your annual contributions.

Based on your income, you can reduce your tax liability by making pre-tax contributions or deciding to prioritize post-tax contributions in a Roth account.

Key Factors of Your Savings Strategy

Not all savings plans are alike. The amount you’ll need to save annually is determined by various factors unique to you.

Current savings: You may already have a small nest egg set aside while planning a savings strategy. While some investors start from scratch, others may start further ahead. The amount of retirement savings you already have will impact how you approach saving for the difference.

Income: Your income today and your expected income growth are key factors in how much you can save while still covering your current obligations.

Time horizon: Investing as early as possible can yield the greatest compounding effects for your portfolio. If you’re closer to retirement, you may need to increase your savings rate to meet your goals.

Asset selection: The type of investments your portfolio contains will result in an average annual return that determines the portfolio’s growth rate. Stocks and bonds, for example, have different risk profiles and return expectations. Finding the right balance of risk and return can ensure you mitigate unnecessary risk while still benefiting from healthy returns.

Inflation: Inflation lowers your effective net returns—meaning an 8% annual return in the same year as a 2% inflation rate would mean your purchasing power increased by only 6%. A high inflation rate reduces your effective investment returns as the price of goods increases. The inflation rate may require you to adjust your savings strategy.

Calculate Your Savings Figures

Use the investor.gov compound interest calculator to test your savings inputs against your retirement savings goals and make sure you’re on the right track.

The Bottom Line

Your retirement savings magic number doesn’t have to be as daunting as it seems.

By taking control of your retirement savings plan, you can confidently prepare for your next chapter and enjoy the lifestyle you want in your later years.

Let Webull help you on your journey. Open up a Retirement Account with Webull today or get personalized recommendations from our Smart Advisor. And make sure to check out Webull Learn for more resources on Retirement, Stocks, Bonds, ETFs, and more!