Calculating Your Retirement Needs

Is $1 million enough?

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Many Americans aren’t sure how much money they will need to save for retirement. Some 44 percent of all employed Americans and even 29 percent of those age 55 and older admit that they don’t know how much money they will need in retirement, according to a new ING Direct survey.

[See Is $1 Million Enough to Retire On?]

Among those who have a retirement savings goal, one third of current workers age 55 and older believe they need $250,000 or less in order to retire. “Between medical expenses and increased health care costs people will face in their older years the cost of what people will need in retirement is much higher than that,” says Dan Greenshields, president of ShareBuilder. He says that most Americans should strive to save between $500,000 and $1 million for retirement, depending on the cost of living where they plan to retire. “If you live in a low cost state you need less because the cost of living is lower,” Greenshields says. “If you live in Washington DC, New York, or Los Angeles, you need more.”

[See America's Best Affordable Places to Retire.]

About 20 percent of Americans approaching retirement age think they need $500,000 to retire and 13 percent are aiming to save $750,000. Other investors are striving to save at least $1 million (20 percent), $1.5 million (6 percent), or $2 million (8 percent) before they permanently exit the workforce, the survey found. But in many cases these retirement estimates were not arrived at by any sort of retirement needs calculation. Nearly half (47 percent) of these older retirement savers simply guessed how much money they will need in retirement. Far fewer older workers did their own research (29 percent), used a retirement calculator (9 percent), or consulted a financial adviser (9 percent). Among those who did their own calculations the factors most often considered were living expenses, expected Social Security income, health care costs, life expectancy, retirement age, desired income in retirement, and inflation.

Check out these eight factors that determine your final 401(k) balance.