Here's How Much You Need to Save for Retirement if Your Salary Is $75K

While many financial experts say that we'll only need around 75% of our current salaries in retirement, the truth is a bit more nuanced. How much you'll need depends almost entirely on how you want to spend your retirement years. Are you happiest when you're camping and playing cards with friends, or would you rather travel or even start a small business?

It's up to you to decide how much of your current salary you would like to have in retirement and work from there. Here, we'll show you what we mean.

Guaranteed income

The first step is to find out how much you can expect in guaranteed income each month. Guaranteed income includes Social Security payments, pension checks, and annuities. If you own rental property, your guaranteed monthly income can include any profits generated.

Let's say you used to earn $75,000 per year. You've visited my Social Security, and it looks like you'll receive $3,500 a month if you retire at age 70. You're also expecting a $1,000 monthly pension from a former employer. That gives you a total of $4,500 in guaranteed monthly income in retirement.

Multiply that $4,500 by 12 to learn how much you'll receive annually -- $4,500 x 12 = $54,000.

You know that you already have $54,000 covered. That's very close to 75% of your current salary, but you've decided that you want your salary to remain the same. In other words, you want $75,000 a year hitting your checking account.

Since $54,000 is already accounted for, that means you need to come up with $21,000 more. ($75,000 ﹣ $54,000 = $21,000)

Of course, this is just one example. The amount of money you'll need to fill the gap between guaranteed income and your desired annual income will be unique to you.

Filling the gap

Due to the recent rise in inflation, the latest research indicates that your best bet is to withdraw 3.8% from your retirement account annually. Withdrawing 3.8% or less increases the chances that your money will last throughout your lifetime.

This illustration assumes that investments for retirement earn an average annual return of 7%. Depending on the year, investments may earn more or less. However, we're looking for a long-term average of 7%.

Uncle Sam will still want his piece

You'll still have to pay taxes on your income in retirement, although the majority of states do not tax Social Security or pensions. These 10 states continue to tax Social Security income, although taxation may be reduced based on age or income:

• Connecticut
• Kansas
• Minnesota
• Missouri
• Montana
• Nebraska
• New Mexico
• Rhode Island
• Utah
• Vermont

Be sure to factor in taxes when you're deciding how you're going to fund your dream retirement.

Medical expenses

The Center for Retirement Research at Boston College found that 12% of the median retiree's income went toward covering medical expenses. These expenses include Medicare premiums, prescription drugs, doctor visits, over-the-counter medications, and dental care. While Medicare does pay some healthcare expenses, it does not cover all medical care.

According to the 2022 Fidelity Retiree Health Care Cost Estimate, a single person who retires at age 65 this year may need $157,500 saved to cover health care expenses for the rest of their lives. If they live another 25 years, that averages around $525 per month.

If you're beginning to think you might want to raise the amount of money you'll have coming in each month, the best way to accomplish that goal is to increase your investment contributions, make sure your emergency savings account is fully funded, and keep your debts low.

For many, the very thought of retiring brings them pleasure. And while it may end up being the best time of their life, a lot of financial planning goes into getting there.