$1 million not enough?

Many people are saving and investing for their retirements (as most of us should do), aiming to amass $1 million. But for lots of folks, that might not be enough.

That's especially true for younger people, because by the time they retire, inflation will likely have shrunk the purchasing power of that million. If inflation averages 3% annually, it can cut your money's purchasing power in half over 25 years. So the younger you are, the bigger the nest egg you should aim for.

However near you are to retirement, you might use the flawed-but-still-useful “4% rule” to get a rough idea of how big a nest egg you'll want. The rule, simplified, suggests withdrawing 4% of your nest egg in your first year of retirement and then adjusting future withdrawals for inflation. So if you retire with $1 million, 4% would get you $40,000 that year. Add your Social Security benefit to that (the recent average retirement benefit is close to $23,000 annually), and any other income. Would that be a reasonable sum for you to live on?

It's helpful to take some time estimating how much income you'll need or want once you've retired. Start with your current living expenses and adjust them for retirement — will you spend less or more on dining out, for example? You might spend less on your wardrobe, but more on activities such as hobbies and travel. Be sure to factor in health care, which could cost you hundreds of thousands of dollars.

If it looks like you're way behind in preparing for retirement, you might improve your situation by saving more aggressively and by working a few more years than you planned. That way you can invest more money, and your nest egg won't have to support you for as many years. Generously funding retirement accounts such as 401(k)s and IRAs can also help.

For lots of retirement guidance, check out our “Rule Your Retirement” service at Fool.com/services.