Here’s How to Retire With $100k Per Year of Income

By Justin Pritchard, CFP®

One of the first steps of planning for retirement is understanding your goal: How much do you want to spend each year or month? There are several ways to arrive at that answer, and one approach is to choose a round number for an annual income. For some people, the goal is to have $100,000 of retirement income per year, so let’s review how that might work.

First, Make Sure You Need It

It’s worth quickly verifying if you actually need that much income. That’s because the more money you want to pay yourself each year, the more resources you need. And that might require you to work for longer than you want or save more each year (potentially depriving yourself and your loved ones of enjoyable experiences).

If you currently earn $100k per year, you probably don’t spend all of that. For example, you might be able to subtract a few things that come out of your income:

  • 401(k), 403(b), or TSP contributions of $19,500 (or more, if you’re over 50)
  • Payroll taxes of 7.5%
  • Federal, state, and local income taxes you pay each year

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Example: For an oversimplified case, let’s assume you’re single and your gross salary is $100,000. You contribute $19,000 (pre-tax) to a retirement plan at work, and you pay federal income tax of around $10,000 after taking the standard deduction. Roughly $7,500 is withheld from your pay each year. 

  • In this case, you can only spend $63,000 per year after federal income tax and retirement savings, and we’re potentially ignoring local taxes and other items.

Waterfall chart showing spending after $100k of income and various expenses

Granted, you may still need to pay taxes in retirement, but the amount you pay could be less than you’re currently paying. Adjusting your goal from $100,000 to $63,000 of after-tax spending could make a difference. It’s much easier to create $63,000 of annual income!

Your location is also a factor. If you live in a coastal city or other high-cost areas, $100k might not go very far. Be sure to consider all aspects of your finances (and any future plans to relocate) as you plan for retirement.

Finally, it’s important to recognize that some expenses might go away in retirement. For example, if you have 15 years left on a mortgage payment, the loan payment will eventually end. Budget for those changes, but remember that other expenses (like healthcare costs) could increase during retirement.

Adjust for Inflation

For now, let’s assume you want to spend the entire $100k per year in retirement. The next question is when you’ll retire. If that event is several years away, it’s smart to adjust your spending goal for inflation. That way, you can continue to afford the lifestyle that $100k currently affords.

Example: Assume inflation is 2.5% per year. How much will you need in the future to keep the same purchasing power?

  • 10 years away from retirement: Plan for income starting at $128,008 per year. 
  • 5 years away from retirement: Plan for income starting at $113,141 per year.

A “future value” calculation can help you figure out exactly how much to target in your first year of retirement. The tool below can help you calculate your own numbers.

Ongoing Inflation and Adjustments

Inflation won’t necessarily stop when you stop working. As a result, you may want to plan for an income that continues to adjust for inflation year by year. That way, you get an annual raise that makes it easier to keep up with rising costs over time. That’s beyond the scope of this article (for now, at least, but check back for updates). Plenty of retirement calculators—or a skilled financial planner—can help you find the answers you need, though.

There may be other reasons to adjust your income over time. For example, some people view retirement in three (or more) stages. For example, you might be at your most active and spend money on vacations and leisure during your early retirement years. Over time, you might slow down, and eventually, most of your expenses might go toward healthcare. A linear spending plan won’t reflect those changes.

Account for Income Sources

Your retirement income can come from several sources. In addition to withdrawals from retirement savings, you may have income from Social Security, pensions, or other sources. Those income sources can reduce the amount you need to withdraw each year (and, therefore, the amount you need to save up before retiring).

The average Social Security retirement income is just over $18,000 per year. But if you’re accustomed to living on six figures, your benefit could be higher. If we assume you’ll get $24,000 per year, we can subtract that from your desired income. 

Sticking with a goal of $100,000 brings your need down to $76,000 per year that you’ll need to fund from withdrawals. Any other income sources (royalties, annuities, etc.) can further reduce the need.

How Much Money Do You Need for $100k per Year?

To create a retirement income of $100,000, you might need $1.9 million in savings. But that number is based on assumptions that may not hold true, and it might not adequately account for taxes and other factors. The best way to estimate your need is to complete a detailed retirement plan.

Using rough numbers is imperfect, but for an estimate of how things could unfold, we can start with the controversial 4% rule. That rule assumes you can reasonably withdraw 4% of your beginning-of-retirement assets each year for around 30 years. The goal of that rule is to prevent you from running out of money within that 30-year period, but there are no guarantees, and you could certainly deplete your savings. While the rule simplifies some basic retirement planning, it relies on certain assumptions, which might or might not be valid.

Still, it’s good enough for right now. If you want to be more conservative, you can use a lower withdrawal rate, like 3%. 

To arrive at $1.9 million, we use the 4% rule and assume you need to withdraw $76,000 per year (the other $24,000 is the assumed Social Security income). For a quick answer, we divide 76,000 by the withdrawal rate of 0.04, and the result is $1.9 million.

However, this might not be exactly right. A significant pitfall is that we’re ignoring taxes. When you withdraw funds from a retirement account, you might owe taxes. That’s particularly true for withdrawals from pre-tax accounts like a traditional IRA or pre-tax 401(k). As a result, you’d need to withdraw more than $76k, and you’d need more than $1.9 million to support those withdrawals.

Again, it’s possible to calculate all of these things, but the details depend on numerous individual factors and assumptions, so we’ll keep it at a high level for now.

Note: If all of your retirement money is in Roth accounts and you qualify for tax-free withdrawals, that $1.9 million might be an accurate figure.

How Much Do You Need to Save Each Year?

Now that you have a lump sum goal, whether that’s $1.9 million or something else, you can calculate the annual savings required to reach that goal.

Make a Plan

A goal of $100k is a nice round number. But is it the right number, and are there moving parts that might impact how much you need to save? The right amount might be higher or lower, and the best way to figure that out is to run some numbers. In fact, $50k of retirement income is plenty for some people (in some places). There are numerous calculators out there that can help, and a financial planner can also assist.

If you found this information helpful, you’ll enjoy this series of educational emails and downloads on retirement planning. It’s available at no cost, and you can opt out at any time.

Or, Let’s Talk

As a fee-only fiduciary financial advisor, I help people with questions like this all the time. We can work together virtually if you live in most U.S. states—just ask. Options for working together include flat fees, hourly charges, investment management, and more. Send me an email to start the conversation.