How much do I need to save to reach my retirement goal?

Defining your personal savings rate

One of the most common questions I hear from physicians is simple:

“How much do I actually need to save to retire?”

The frustrating answer is usually some version of “it depends.” But that doesn’t help you decide whether your current lifestyle is sustainable or if you need to make changes.

In this post, I’ll show you how to think about that question and give you a tool to calculate your own answer.

First, some principles

1. Everyone is different.  There is not a set-in-stone best savings rate that fits every situation.  People have different retirement goals, different incomes, and different investment approaches. And they finish their training at different ages with different amounts already saved. All these things factor into their expected financial outcomes.  So, how much should you be saving?  Like most things in personal finance, the answer depends on the variables. 

   
   

2. The more you save and invest, the faster you will reach financial independence.  But at what cost?  Many of you have heard of the “FIRE” movement: Financial Independence Retire Early.  In its truest form, those who subscribe to this model are doing everything they can to save as much as they can as early as they can so that they can retire as fast as they can. 

   But it comes with a cost: a significantly reduced lifestyle along the way.  Are you willing to continue living like a resident for years longer just so that you can retire in your 30s or 40s?  Are you ready to leave a career so soon after spending over a decade in creating it? And more importantly, what are you actually trying to achieve? Is retirement your primary goal? Shouldn’t it be to find joy and meaning in your life?  (If you are interested in hearing more conversations related to creating a successful retirement transition, check out my podcast: The Second Shift.) 

   
   

3. All things in moderation.  In general, this is a good mantra to live by, and to save and invest by.  It is important to create realistic goals, achievable milestones, and solid life balance along the way.  Don’t replace today’s happiness with the “I’ll be happy when. . .” mentality.  You can prepare for the future and still enjoy the journey.

   
   

The Retirement Savings Calculator

With all of that in mind, I have created a tool to make these decisions easier and more personalized to your situation.  Rather than just throwing out a “best” savings rate that everyone should live by, I created a calculator where you can input the important variables that are applicable to your specific situation and it will generate answers to help guide your decisions.

This tool allows you to:

1. Define your target

2. Determine the savings rate required to reach it

3. Evaluate whether you are on track

   
   

It’s not a perfect model and doesn’t account for every variable, but it does give you a baseline to work from.  For more comprehensive planning, you should really engage with a qualified fiduciary financial planner. 

(To help you know what to look for in a financial advisor, check out these previous posts.)

The inputs to the calculator include:

• Your current age

• The age you want to retire

• Your current annual gross income

• Your current retirement savings amount

• Your expected annual retirement expenses in today’s dollars

• Your expected investment returns

• The expected rate of inflation

• Your anticipated withdrawal rate from your investments at retirement

• The annual employer contributions to your retirement accounts

• Your current annual savings

Once those are entered, the calculator goes to work and determines how much you will need in your nest egg when you plan on retiring, adjusted to inflation.  It will tell you how much you need to save each year, what your required savings rate should be, and if you are on target.  If you are behind, it shows you the gap. 

You can download the calculator from the financial tools page on my website.  Here is the link: The Retirement Savings Rate Calculator

Interpreting your position

One of the most useful features of the calculator is a dynamic graph that automatically adjusts according to your current situation.  It shows your targeted net worth goal along with the growth curves of your investments based on your current and ideal savings rates.  When the growth curve crosses the target line, you are likely in a position to retire if you choose.

Remember, this is a blunt tool, not a precision instrument.  I would still encourage you to build in some cushion and to engage with a financial planner to create a comprehensive plan that will adjust to all the other nuances in your financial life. 

Here are a few opportunities where guidance can be particularly useful:

1. You are quite behind.  If that is the case, you don’t have to panic.  But you do need to plan. A fiduciary advisor can help you determine what changes are required to catch up.

2. You are on track to retire early.  Early retirement requires as much or more planning as finding yourself behind.  Effective retirement planning can help save you money on taxes, prepare a quality estate, and maximize the value and joy in your life for all the years or decades that you will have left to live. 

   
   

What if I am just finishing residency? How much should I save?

Let’s look at a common scenario: a physician just finishing residency. Again, I’ll lead with the caveat that everyone is different, but I picked some average assumptions and plugged them into the calculator:

1. Age: 30

2. Desired Retirement Age: 60

3. Annual Salary: $400k

4. Current savings:  0

5. Anticipated annual retirement expenses in today’s dollars: $150k

6. Expected rate of return on investments: 8%

7. Expected rate of inflation: 2.5%

8. Withdrawal rate at retirement: 4%

9. Annual employer contributions:  $20k

10. Current personal savings goal: $50k

    
    

What does the calculator say your personal savings rate (not including employer contributions) needs to be?  12.4%. 

And if you are saving around $50k per year, you are almost right on target. 

Now, if you want to retire at age 55? Your required savings rate jumps to 18.8%.

If you want to retire early and spend $200,000 per year in retirement?  You need to save 26.7%. 

Conclusion:

Retirement readiness isn’t determined by your income. It’s determined by your savings rate and how consistently you invest over time.

The exact number will vary based on your goals, but with the right framework, you can make informed decisions about your lifestyle today without sacrificing the future you envision.

Early financial independence creates optionality. It gives you the freedom to decide how you want to spend your time. But it shouldn’t come at the cost of burnout or a life you don’t enjoy along the way.

Remember, this is a long game. With the right balance of discipline, planning, and perspective, you can build a future you’re excited about while still enjoying the life you’re living today.

If you like this content and find it helpful, please share it with others and subscribe here to receive email notifications of new articles. 

And if you are interested in refining your retirement projections as well as creating a full comprehensive financial plan, I’d love to talk with you further.  Here is a link to my calendar for a free 30-minute discovery call.   

Disclaimer: the material in this blog post is intended for general educational purposes only and should not be considered specific financial advice. You should always consult with your personal financial advisor to see how it might fit within your personalized financial plan.