Most people have a vague feeling about whether they are saving enough for retirement, and a vague feeling is a terrible way to plan a thirty-year goal. The good news is that turning the feeling into a number takes only two calculations: where your savings are heading, and where they need to be. Compare the two and you have your answer.
Here is a result that motivates the exercise. A 35-year-old with $50,000 saved, adding $10,000 a year and earning 6 percent, will have about $1,077,756 by age 65. That sounds like a lot until you compare it with the target for a $60,000-a-year retirement income, which is $1,500,000. The gap is real, and the only way to see it is to run both numbers.
What does “on track” actually mean?
On track means your projected nest egg at retirement will be at least as large as the target needed to fund your desired income. It is a comparison of two figures:
- Your projection: what your current savings plus future contributions grow to by your retirement age.
- Your target: the nest egg required to pay your desired income at a safe withdrawal rate.
If the projection meets or beats the target, you are on track. If it falls short, you have a shortfall to close. That is the whole framework, and each number is straightforward to build.
How do I set my target number?
Your target is your desired annual income from savings divided by your safe withdrawal rate. The withdrawal rate is the share of your nest egg you plan to spend in the first year of retirement.
The most cited figure is the 4 percent rule. Dividing by 4 percent is the same as multiplying by 25, so a $60,000 income target means a $1,500,000 nest egg. Want to be more conservative? Use 3.5 percent (about 29 times) and the target rises.
| Desired income from savings | At 4% (25x) | At 3.5% (about 29x) |
|---|---|---|
| $40,000 | $1,000,000 | $1,142,857 |
| $60,000 | $1,500,000 | $1,714,286 |
| $80,000 | $2,000,000 | $2,285,714 |
The 4 percent rule comes from historical withdrawal-rate research (Bengen in 1994 and the Trinity study in 1998), which found that a 4 percent first-year withdrawal, adjusted for inflation, survived most 30-year periods. It is a planning anchor, not a promise, and it works best as a way to size a target rather than a rule you follow rigidly.
How do I project where I will land?
Your projection has two parts that you add together: your current savings growing on their own, and your future contributions growing as a stream. Both compound at your expected return.
Take the example: $50,000 today grows for 30 years at 6 percent to about $287,000, and 30 years of $10,000 annual contributions grow to about $790,000. Together that is roughly $1,077,756. Against the $1,500,000 target, you are about $422,000 short. The retirement on-track calculator does this and charts the path year by year against your target.
Watch the inflation trap
A simple projection is in nominal dollars, so the desired income you enter should be a future, retirement-year amount, not today’s. If you plug in today’s $60,000 without adjusting upward for decades of inflation, the target understates what you will really need. Either inflate your income figure or use a real (inflation-adjusted) return.
What do I do if I am behind?
A shortfall is information, not a verdict. You have four levers, and they are not equal:
- Save more. In the example, about $5,341 more per year would close the gap by 65. Direct and effective, but limited by your budget.
- Work longer. This is often the strongest lever, because each extra year adds growth, adds contributions, and removes a year you have to fund. Even two or three years can transform the picture.
- Lower the target. A smaller desired income, or counting on Social Security to cover part of it, shrinks the target directly.
- Accept a higher withdrawal rate. This raises risk rather than reduces the gap, so use it carefully.
The earlier you act, the smaller the required change, because compounding does more of the work the longer it runs.
Where does Social Security fit?
This kind of projection usually covers only what your savings must provide, so Social Security and any pension sit on top. Subtract your expected Social Security from the income you want, and let your portfolio cover the rest. That single adjustment often shrinks the target meaningfully, which is why an honest on-track check separates “income I want” from “income my savings must produce.”
The bottom line
Being on track is two numbers and a subtraction: project your nest egg, set a target from your desired income and a safe withdrawal rate, and compare. If you are ahead, keep going. If you are behind, the fix is usually some mix of saving a bit more and working a bit longer, started as early as you can. Once you know whether you are saving enough, use the Roth vs Traditional calculator to choose the account type that keeps the most of it after tax.