Common wisdom suggests a starting point of an 80% replacement rate to final income. It also suggests a 4% initial withdrawal rate from retirement assets leading to a goal of 20 times final income as the target nest egg.
Think of these numbers as a mid point of a bell curve. The retirement budget is personal. During your life were you saving for the kids' education? You won't have this expense in retirement. Same with the mortgage, if you pay it off before retiring. I've seen $100k budgets showing the couple was living on less than $40k, due to the combined mortgage, college saving, and retirement saving. Social security alone would cover their spending in retirement, my advice wasn't to save less/spend more, but to be aware and understand their retirement was actually funded to spend nearly twice their pre retirement spending.
I've also seen the same $100k spent in full, a couple in their 50s with virtually no savings, and living on their entire income and then some.
The dilemma is this - first understanding your own current budget, then forecasting how it might change in its composition if not actual dollars. I have to say, Mhoran is right on, the goal isn't fixed, it's a moving target, and needs frequent revisiting.
Note - I wrote about social security replace ratio last year, the 20x or any other target goal should take SS into account unless you believe it won't be there at all.
Update - Retirement needs are best understood by looking at spending, not earnings. Financial writers typically focus on the replacement ratio, which of course is a comparison to earnings, not spending. In the end, one can either get wrapped up in the discussion of where to start, or simply start saving, aggressively, with an eye on the 80% rule of thumb, and as age 40 rolls around, start to migrate to a spending model.
Much of the process of doing the math along the way was discussed in How much money do I need to have saved up for retirement and my answer take a different spin there.
