Quick answer: At 35 with 100,000 saved, an income of 120,000 a year in today's money from 60 to 85 needs 4,697,695.53 at 60; at a 6% return that means saving 6,311.66 a month.
How it's calculated
The income you want is raised by inflation to your retirement date: W = income × (1 + π)^years. The sum needed then is the present value of T yearly withdrawals that start at W and rise with inflation, taken at the start of each year: W(1 − ((1 + π)/(1 + r))^T)(1 + r) ÷ (r − π), where r is the return during retirement.
Your current savings grow at the pre-retirement return. The gap is saved monthly, at the monthly equivalent of that return. A pension or other income (for example GOSI in Saudi Arabia or a GPSSA pension in the UAE) reduces the income the savings must provide.
Small changes in return and inflation move the answer a lot over decades, so try a few cases. For a fixed income from a lump sum, see the annuity payout calculator.
Worked examples
- Age 35, retire 60, plan to 85, 100,000 saved, 120,000 a year, 6% / 4%, inflation 2.5%: need 4,697,695.53; save 6,311.66 a month
- Same with a pension of 60,000 a year: need 2,348,847.76; save 2,838.52 a month
Frequently asked questions
How much income will I need?
A common rule of thumb is 70% to 80% of your pre-retirement income, less if your home is paid for. Your own budget is a better guide.
Why a lower return during retirement?
Most people move to safer investments as they start drawing an income, which usually means a lower expected return.
Does it include end-of-service gratuity?
Not separately. Add any gratuity you expect to keep invested to your current savings, or lower the gap by its future value.
Why is the amount so large?
It covers many years of income, each raised by inflation. A figure that looks huge today buys much less by the time you retire.
How much does starting earlier help?
Greatly. Try the calculator with an age five years younger or older, and compare the monthly saving needed.
How often should I review my plan?
About once a year, and after a big change such as a new job, a move or a change in family. Update your savings and returns.