How much do I need to invest to retire comfortably?

November 15, 2021

After a life spent working, you want to be able to retire comfortably. This begs the question: how much do you need to invest in order to be able to retire comfortably? This article will examine this question in order to help you to create a framework for investing during your working life.

There is an oft-quoted rule of thumb that applies to retirement investments. Most advisors agree that you want to have saved enough to provide you with a post-retirement income of 55 to 80 percent of your pre-retirement income for whatever term you think is rational, although most tend to base their estimates on a retirement term of between 20 and 25 years. Where you fall in the range of post-retirement income depends on your spending habits, the medical expenses you can reasonably predict, and the amount of flexibility you would like to have in terms of extending your retirement.

In order to arrive at this figure, the broad consensus is that you should save 15 percent of your salary per year throughout your working life. This figure is high for a lot of people, but the less you put in initially the harder it is to catch up. It is also advisable to start saving as early as possible in order to take advantage of compounding interest. Every year that you are not saving towards retirement, you are losing the benefit of this effect.

In order to dig deeper, let’s take a look at some of the problems and solutions associated with investing for retirement so that you can get a better grip on your progress.

Cost of Living

One of the biggest issues with trying to plan for retirement is that you need a benchmark, but there are so many out there that it can quickly become confusing. The major problem is that you are unique, and so are your circumstances and desires. You have constraints on what you can invest, and aspirations for the lifestyle you would like after you retire. You will see ideas like the 55-to-80-percent rule cited regularly, or that you should aim for investing $1 million, and a whole host of other simple-seeming rubrics. You won’t necessarily find that these will work for you.

The main thing to consider when working out your retirement investment plan is your cost of living. It is reasonable to assume that you would like to maintain the standard of living that you have at the point of retirement after you leave work, and so you should calculate your required retirement income based on that. To take an easy math example, if you are earning $100,000 when you retire at 65, your cost of living will likely sit somewhere between $60,000 and $80,000 (this is where the 55-80 percent rule is derived from). Therefore, you need your retirement investment to pay out somewhere in that range annually for you to maintain your standard of living through retirement.

When you are working out your cost of living, it is important to consider not only your existing spending habits, but also contingencies that might arise during the course of your retirement. For example, you may have a health condition that you can expect to receive ongoing care or medical attention for, which you should budget around. You may not have a health condition now, but you might want to think about any changes to your insurance that may occur as you age, or investigate your family medical history for things you need to be aware of.

As well as things that can bring your cost of living up in retirement, plan around expenses that you will be losing too. There are lots of expenses associated with work that you will no longer have to consider, as well as the fact that you no longer have to worry about investing in your retirement fund. Will you be finishing paying your mortgage when you retire? If so, then you need to take that into account too.

It may be daunting to be in your twenties or thirties and considering what your final paycheck will look like, but the better you can envisage your career path, the better you can plan for your retirement.

Duration of Retirement

The next logical step in planning your retirement investment is to think about how long you are going to be retired. This might seem a bit morbid but, for long-term planning like this, it is an essential task in order to set an appropriate benchmark. Most retirement advisors say you would plan for between 20 and 25 years of retirement, so this is a logical timeframe to aim for.

Once you have your duration and cost of living, you can establish how much you need to have saved by the time you retire. For the sake of our example, if we plan for a 25-year retirement fund paying out $80,000 a year, we will need $2 million at retirement.

Investing to Reach Your Goal

Let’s put this together into a workable example. For the sake of discussion, let’s start investing at age 30 with a household income of $50,000, aiming for a retirement income that is 80 percent of final salary for 30 years after retiring at 65. This example assumes that your salary will increase by two percent per year over the course of your working life, which gives a final year’s working income of just under $100,000. To achieve this, you would invest 15 percent of your income per year.

This strategy takes advantage of interest on your investment at 7%, an absolutely essential consideration in investing for retirement. To reach the goal we have just set, you have to start investing that 15 percent at 30 years old. You can’t miss five years and try to catch up. In fact, if you wait until you are 35 under the same strategy, you stand to lose $400,000 of retirement investment, a colossal figure.

This is due to the compound nature of interest. Every year you earn interest on a compound product, like a retirement fund, the interest is reinvested and so your principal (the initial figure you invested) grows. Because you are always growing your principal (by adding more money each year) and receiving compound interest on your investment, it grows at an exponential rate.  


Investing for your retirement is a very personal thing to contemplate. There are a multitude of factors you have to take into account, and you have to start as early as possible. Here are the key things to remember so you can invest with confidence.

  • Start as soon as you can – every year you don’t invest for retirement, you lower your total retirement income significantly.
  • Plan for contingencies – make sure you take into account health conditions and any other expenses you might incur in retirement.
  • Invest consistently – pick a percentage of your salary and stick to it. You can always increase it over time. Get a good rate of return – make sure you’re investing in a retirement fund with a good interest rate to make the most of your money.

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