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Planning for retirement can feel overwhelming, especially when trying to determine how much money you’ll need to live comfortably after you stop seeing patients or running your practice. As you research retirement savings strategies and principles, you may encounter the concept of a “magic number.”
What is this magic number? Can it help doctors prepare for retirement? We answer these questions and review other retirement savings strategies below.
What is the retirement savings magic number?
The concept of a retirement savings “magic number” refers to a specific savings target individuals think they need to reach for retirement. This number is often seen as a universal retirement savings target. For doctors, this concept may be especially daunting as they face paying back enormous student loans, an extended period of low wages during residency and fellowship, and credit card or personal loan debt incurred during this time.
A 2024 study by Northwestern Mutual found that U.S. adults believe they will need $1.46 million to retire comfortably. This is a 15% increase from 2023’s average target, $1.27 million, and a 53% increase from the reported target in 2020, $951,000.
| 2024 | 2023 | 2022 | 2021 | 2020 | |
|---|---|---|---|---|---|
| Amount expected to need to retire comfortably | $1.46M | $1.27M | $1.25M | $1.05M | $951K |
These high goals are in stark contrast to the average amount U.S. adults actually have saved. In 2024, the average amount set aside for retirement is $88,400.
| 2024 | 2023 | 2022 | 2021 | 2020 | |
|---|---|---|---|---|---|
| Amount saved for retirement | $88,400 | $89,300 | $86,900 | $98,800 | $87,500 |
Even when divided by generation, older Americans’ savings are still behind their savings goals.
| Gen Z | Millennials | Gen X | Boomers + | High Net Worth Individuals ($1M+) | |
|---|---|---|---|---|---|
| Amount saved for retirement | $22,800 | $62,600 | $108,600 | $120,300 | $172,100 |
Should I use the retirement savings magic number?
How much do doctors think they need to retire?
How much should I save for retirement?
The 4% rule
- Calculate Your Annual Retirement Income Need: First, estimate how much money you’ll need each year in retirement to cover expenses and maintain your lifestyle. One rule of thumb for deciding your retirement savings goals (the 80% rule) is that you’ll need 80% of your pre-retirement income to maintain your current standard of living. For example, if you are earning $100,000 annually before retirement, your target income for retirement would be $80,000 per year.
- Multiply by 25: According to the 4% rule, you can get your target savings by multiplying your annual income need by 25. So, if you need $80,000 per year:
$80,000 X 25 = $2,000,000
This means you’d need $2 million saved to withdraw $80,000 per year sustainably. - Adjust for Other Income Sources: If you expect income from Social Security, a pension, or other sources, subtract that from your target annual need before multiplying by 25.
Other considerations for saving for retirement
Though the 80% and 4% rules provide a better guideline than the “magic number,” there are still other factors to consider.
Expenses
Your unique lifestyle and typical expenses will influence how much you need to save. Retirees who plan to travel extensively may need to save more than those who plan to live a more modest lifestyle.
If you anticipate having higher-than-average healthcare costs or supporting family members, you may need to save more. Be sure to consider these possibilities as you create a savings goal.
Life expectancy & retirement age
Life expectancy is increasing in the U.S. Retirees should plan for 20-30 years of post-work life. The longer you live, the more money you will need.
This is coupled with your desired retirement age. Doctors who hope to retire early will need to plan for more years living off of their saved income. Other doctors retire much later than the average retirement age. About 20% of dentists retire at age 75 or older according to the American Dental Association. Older retirees may not need to save as much since they are still bringing in income at an older age.
Inflation
Over time, the cost of living increases, meaning your retirement savings may not stretch as far as you expect. To counter this, invest in assets that outpace inflation, including stocks and real estate, and periodically adjust your savings targets.
Finding your retirement magic number
Here are four steps to finding your own retirement savings goal:
- Estimate your annual expenses in retirement. You can use the 80% rule as a starting point but adjust for your specific lifestyle and goals.
- Calculate how much income you’ll need to generate annually from your savings. Subtract any expected Social Security or pension benefits from your total estimated expenses.
- Use the 4% rule to determine how much you need to save.
These steps can give you a better picture of what you should be saving for retirement. For a more clear goal, consider working with a financial advisor who can analyze your income, expenses, and lifestyle to determine what and how you should be saving.
Get connected to an experienced financial advisor.
More retirement resources
Saving for retirement can be daunting, but creating a plan and sticking to it can help ease your mind. Find more doctor-specific retirement resources in our Resource Library or check out one of our curated articles:
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