What is a good monthly retirement income?

How much money do you need to retire? It depends, but it’s never too early to learn what you may need and to start planning.

Predicting the future is impossible, yet it’s almost a requirement when planning for retirement. If you don’t save enough money while you’re working, you risk struggling financially once you retire. That’s why it’s essential to estimate how much money you’ll need for the kind of retirement you hope to enjoy.

When should you start saving for retirement?

If possible, start saving for retirement right now. Prioritize covering your day-to-day expenses and debts but make saving for retirement a very close second. If your employer offers a 401(k), that’s a great way to begin, as is opening an Individual Retirement Account (IRA).

The sooner you can start, the better. Why is this so important? Someone who begins saving smaller amounts when they’re young is often better off than someone who saves larger amounts later. That’s because of the power of compound growth.

And it’s never too early to start thinking about the kind of retirement you want. That way, you can begin planning for how much income you’ll need to fund that lifestyle.

How much money do you need to retire?

Retirement planning isn’t a one-size-fits-all process. Your financial needs will be determined by your expected lifestyle. Do you hope to stay in your current home or move into a retirement community? Is traveling a big part of your post-retirement picture, or do you plan on picking up a part-time job?

Your preferences will likely change throughout your life and impact your financial plans. And that’s okay. It’s still a good idea to estimate how much money you’ll need for your ideal retirement as you envision it currently. Any money you save toward that retirement scenario will remain even if your goals change.

A couple smiles while sitting with their two young children on a patio, with trees in the background.

“A common guideline is to replace 80% of your pre-retirement income,” suggests Jose V. Sanchez, CFP® and financial advisor. “Take this amount and multiply it by 25 for a ballpark figure of how much you need to save.” 

Why do you need to multiply by 25? Sanchez explains that a common retirement rule of thumb suggests you withdraw only 4% of your savings each year after you retire. Multiplying by 25 gives you the approximate total amount you’ll need to save if you follow the 4% rule.

Of course, you may not need to save this entire amount if you have other sources of income in retirement, such as Social Security, a pension, or a part-time post-retirement job.

How to estimate the retirement income you’ll need

As you identify your post-retirement income needs, remember that your spending may shift over time.

“In the early years, you may be going more places like pickleball, project work, volunteering, travel, and transporting grandkids. Your transportation costs will increase at this stage,” Sanchez explains.

“As we enter the next phase, you may slow down,” he adds. “Transportation costs may decrease, yet health care costs can increase.”

What is a good monthly retirement income for a couple?

Sanchez suggests having discussions with your partner about your mutual retirement needs. He says it’s worth considering together how your income needs will change after retirement, and whether one partner may want to retire early as long as they can continue using the other’s health insurance benefits.

It’s also important to talk more generally about what each of you imagines as your “ideal” retirement. If one of you wants to travel the world and the other wants to sell everything and live in a cabin in the woods, you should try to find a compromise far in advance. A cabin on wheels, perhaps?

“A common guideline is to replace 80% of your pre-retirement income. Take this amount and multiply it by 25 for a ballpark figure of how much you need to save.”

Jose V. Sanchez, CFP®

Calculating your retirement ‘income gap’

Sanchez recommends calculating your retirement “income gap” to understand how much you’ll need to save to reach your retirement goals.

“I like the idea of doing a pen-on-paper timeline and taking an income flooring approach to understanding annual income needs,” Sanchez says. With the flooring approach, you subtract all guaranteed income (Social Security, pensions, annuities, etc.) from your estimated income needs. The resulting figure is your retirement income gap.

“You’ll need to figure out how to fill this gap through the different phases of retirement,” Sanchez says. A large portion of that income gap will likely be filled by your savings, but there are other sources to consider as well.

What are good sources of retirement income?

If you’re wondering how to make money in retirement, you’ll be happy to learn that there are many different possible sources of income. There may even be actions you can take right now to increase your post-retirement income in the future, so it’s worth knowing about some of the possibilities even if you’ve got decades of work left to go.

Retirement Savings

Distributions from your 401(k) or IRA can be a great source of money after you’ve retired. You can even continue depositing money into an IRA if you continue earning at least some income from wages, salaries, tips, or bonuses. These contributions will be limited to 100% of this earned income or the maximum contribution allowed each year, whichever is less. But because your retirement accounts earn before-tax compound interest, even small increases in contributions will add up over time.

As long as you haven’t hit your limits, both legally and in your personal budget, increasing your retirement contribution can lead to increased gains during retirement. And if you’re getting anxious that you’ll come up short down the line, this may even be an option to consider implementing now.

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You can also diversify your IRA portfolio with products like IRA CDs, or Certificates of Deposit. IRA CDs can be Traditional (you are taxed when you withdraw the money in retirement) or Roth (you make contributions with after-tax income but can make tax-free withdrawals in retirement). But unlike other IRA investments, they provide a defined return if you allow them to fully mature for a set term.

Social Security

Social Security is one of the forms of income Sanchez says you should use to calculate your income floor. As the Social Security Administration notes, however, Social Security benefits are only payable to those with an earnings history, or in some cases, their beneficiaries. In other words, as long as you worked a job that required Social Security contributions for enough years (typically at least 10 years), you’ll receive monthly Social Security income payments throughout your retirement.

It’s also important to know that how much you’ll get in retirement is based on how much you will have earned in your career. Social Security looks at the 35 years in your work history with the highest earnings to compute your benefit. That means that if you work more than 35 years, the lowest-earning years will not be considered.

So, depending on your work history, Sanchez says that working a few extra years can help maximize the amount you will receive.  

Part-time work

If you were reading that last paragraph and thinking, “I want to work more because I am worried I might find retirement boring,” you could always consider working part time during your retirement.

Standing outside a tennis court, three friends smile and stretch their legs.

“Part-time work may be attractive,” Sanchez says. “Start with your former employer. They have spent thousands of dollars and time training you. They may be willing to hire their ideal candidate part time or on a project-based agreement.”

Working part time can be a good way to address your retirement income gap or provide a means to make your transition to retirement more gradual if you’re not ready to give up working entirely. 


Pensions are another form of predetermined retirement income, though they’ve been increasingly displaced by 401(k) accounts, according to Bankrate. Since pensions tend to require you to work for the same employer for a certain number of years before they’re vested, you’ll need to consider early in your career whether you want to try to find a job that offers a pension.


Annuities are similar to retirement account CDs in that they can also provide guaranteed retirement income, per Bankrate. However, they’re offered by insurance companies, and people often consider them to be a bit more complex. You can speak to your insurance provider or a retirement planning professional to learn more.

How can you increase your retirement income?

So you’ve run the calculations, looked at your savings, and factored in some additional post-retirement income sources… but you’re still coming up short. Don’t worry; you still have a few more options to help shore up your income in later years.

Rent out your space

Unoccupied space can be a potential income stream. Whether you plan to purchase a new rental property or have a spare room in your home, rental income can help stabilize your retirement finances.

A woman smiles while loading a bag into the trunk of her car.

Sanchez offers a hack you can use if you’re looking to potentially add another source of income to your annual retirement income:

“Find out when the largest tourism event is in your area and rent your home out. The money you earn from this can potentially be tax-free thanks to the Augusta Rule. IRS Section 280A allows homeowners to rent their home for up to 14 days per year without needing to report the rental income on their tax return. If you plan a vacation or visit family annually, this may be the week you do it.” We recommend discussing this with your tax professional or advisor to clarify that this rule applies to your specific situation.

Rent out your car

If you’re not considering selling your car once you no longer have a commute, you could consider turning it into an income stream. Listing your vehicle with a rental service can allow it to contribute to your retirement income.

“Put that resource sitting in the garage to work!” Sanchez suggests. “Become a trusted local host on a car-sharing marketplace.”

Cut back

There are two sides to every budget. If you need more spare funds in retirement but aren’t sure how to increase your income, you can always try to trim expenses.

A great place to start? “Decrease your total housing costs,” Sanchez says. “This can be done by downsizing or by getting a housemate.”

Moving into a smaller home may provide a significant income boost if you sell your previous home or rent it out.

When can you start planning your ideal retirement income strategy?

You can begin creating your retirement income plan right now! In fact, many of the retirement tools we’ve discussed, like IRAs, earn compound interest that can provide a sizable return—not just from your direct contributions but from the length of your savings journey as well. Basically, the longer you contribute, the more growth you’ll likely see. And as a bonus, compound interest also helps you stay ahead of inflation

“Realize that in retirement, your major expenses will be housing, taxes, and health care,” Sanchez says. “Be mindful that your health will benefit from anything that will reduce anxiety and stress. In addition to increasing your retirement savings, consider actions that will lower your costs in retirement and reduce stress.”

Sanchez recommends drawing a timeline of your ideal retirement, including the goals you’ll be striving for, so you can celebrate as you hit milestones along the way.

“Taking small steps frequently is key,” Sanchez says. “You will never have the perfect plan, but the more mindful you are about your future, the easier it will be to course-correct.”

Looking for an alternative way to save for retirement? Consider opening an IRA CD.

The information contained in this article is for informational purposes only and is not intended as a substitute for professional advice. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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