$1 trillion question: How much do I need to save to retire?

NEW YORK (Money) -- Question: My million-dollar question is: How much should I be saving each month to be sure I'll have a comfortable retirement? My wife and I earn $145,000 a year combined and our total monthly expenses - which includes the mortgage on our home and an investment property, groceries, utilities and other living expenses - are about $6,500. Can you help me? - Asheesh Chabra, Ashburn, Va.

Answer: The issue you're grappling with - how much do I need to save today in order to assure a comfortable retirement tomorrow - is the million-dollar question not just for you, but for millions of Americans (which, in a way, makes it a trillion-dollar question).

But whatever - million, billion or trillion - I'm more than happy to help.

The right answer to this question isn't a mere dollar figure or a percentage of salary you should save. That would be impossible to know without much more information than you've given me here. And even if I could give that sort of answer it wouldn't necessarily be the right answer for long, since circumstances change.

So the best way to answer your question is to outline the thought process you should go through to reasonably estimate how much you must sock away - and then point you to some tools that can help you turn that process into solid numbers.

Let's start at the end.

As paradoxical as it may seem, your retirement planning should start at the end - specifically, the amount of money you'll need each year to live on in retirement.

The reason this is important is that it gives you a target to shoot for and a way to tell whether you're making progress.

When you're close to retiring, you can estimate the amount you'll need by doing a detailed budget of your expenses. But if you're five or more years away from retirement, the chances of such a budget being very accurate are pretty low. So better to assume you'll need a certain percentage of your salary.

Most advisers suggest a figure between 70% and 90%. I think you're better off going with a figure at the higher end of that range, or maybe even assuming 90% to 100% if you want more confidence in being able to maintain your current lifestyle.

Once you have an income target - for argument's sake, let's say $130,000 - you can begin looking at your sources of income in retirement. Some will come from Social Security. And if you're lucky enough to have one, some may come from a traditional check-a-month pension.

Let's assume that you'll get $30,000 a year from Social Security and a pension. That means you'll have to get $100,000 a year from your investments.

If you want reasonable assurance that your nest egg will support you for at least 30 years in retirement, limit your first annual withdrawal to about 4% or so of your nest egg's value. Then you'd adjust that dollar amount for inflation each year to keep your purchasing power constant.

To withdraw $100,000 while limiting yourself to 4% of your nest egg's value, you would need savings of roughly $2.5 million. (For readers who'll need less than $100,000 - or more, for that matter - you can estimate the size of the nest egg you'll need by multiplying the annual income you want in retirement by 25. So if you'll need $30,000 from savings in retirement, you should shoot for a nest egg of roughly $750,000.)

The question then becomes how to generate a $2.5 million nest egg?

Well, you probably already have some money saved in 401(k)s, IRAs or other accounts earmarked for retirement. Assuming you're investing that money appropriately - that is, in a diversified portfolio of mutual funds or stocks and bonds - whatever sum you have will grow throughout the rest of your career.

Unless you've got quite a bit socked away, you'll need to contribute enough each month so that your current savings plus your contributions and earnings on those sums will grow into a nest egg large enough to meet your needs.

Now, this calculation can be a bit unwieldy, what with several different types of accounts involved that get different tax treatment and different types of assets growing at different rates.

Fortunately, there are calculators around that can do this number-crunching for you. The best use sophisticated techniques that simulate the variability of investment returns and such. And rather than give you an answer that has a false sense of precision about it - e.g. "Invest $1,052 a month and your nest egg will be worth $1,125,348 at age 65" - these calculators couch their answers in terms of your odds of success, which gives you a more realistic sense of how you're doing -- e.g., "If you invest 10% of your salary, there's a 60% chance you'll be able to have $80,000 a year in retirement income."

Plus, such calculators let you easily change your assumptions. So instead of contributing, say, 6% of salary, you can plug in 10% to see how that boosts your nest egg. Or you could change your investment strategy, postpone retirement a few years, or throw in income from a part-time job.

You can also re-run the numbers periodically - say, every year or so - to see whether you're still on track or whether you need to make adjustments to meet your retirement goal.

One great calculator to start with is Fidelity's myPlan Retirement Quickcheck, which is capable of doing this sort of sophisticated number-crunching. Of course, if you don't relish the prospect of doing this sort of thing on your own, you can always consult an adviser. (Here's how to find one.)

However you do it, start trying to answer your million-dollar question earlier rather than later, so you'll have ample time to make adjustments. Otherwise, you may find out too late that your expectations of a secure retirement are based on fantasy rather than reality.

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