The term “retirement number” refers to the idea that there’s a single savings amount that guarantees a comfortable retirement.
It’s often thrown around as a target, but there are a few key things to understand about it:
It’s not one-size-fits-all: Your ideal retirement savings depend on your lifestyle, desired retirement age, location, and even health factors that might impact your longevity.
It’s a moving target: Inflation and rising healthcare costs can erode your purchasing power over time. So the magic number you see today might not be enough decades down the line.
It’s a ballpark estimate: Surveys suggest many Americans believe they need around $1.46 million. But this is just an average, and some studies show even higher figures for high-net-worth individuals.
Financial advisors often recommend focusing on strategies instead of a magic number. These strategies might involve aiming to replace a percentage of your pre-retirement income (like 80%) or saving a specific multiple of your final salary (like 10 times).
The Average Retirement Number?
Americans have ambitious goals for retirement savings. On average, they believe they need around $1.46 million to retire comfortably. This number is based on a survey conducted by Northwestern Mutual in 2024.
It’s important to note that this is just an average, and the actual amount needed can vary depending on individual circumstances.
Second Opinion
This figure might seem high, but a Schwab study last year came up with an even higher number. According to Schwab, workers say they need $1.8 million to retire.
But only 37% say they are “very likely” to reach their retirement saving goals.
What Does that Retirement Number Get You
There isn’t a single answer to how much a retiree with $1.46 million could spend per year, but here are a few ways to estimate:
Withdrawal Rate Rule: A common rule of thumb is the 4% withdrawal rate. This suggests withdrawing 4% of your savings each year for a sustainable income stream throughout retirement.
Read Retirement Spending for a more detailed discussion of the 4% rule.
With $1.46 million, that would be:
Annual spending = $1.46 million * 4% = $58,400
The 4% rule is a starting point, and several factors can influence your spending:
Retirement Age: Earlier retirement means a longer time to support yourself financially.
Life Expectancy: Longevity planning is crucial. Consider how long your savings might need to last.
Planned Lifestyle: Do you plan extensive travel or a more modest lifestyle?
Healthcare Costs: Healthcare can be a significant expense, especially in later years.
Investment Returns: Your investment strategy’s performance will impact how much you can withdraw safely.
A financial advisor can create a personalized retirement plan considering your specific situation and risk tolerance. They can help you determine a safe withdrawal rate and investment strategy for your goals.
Plus, Social Security
Beyond your retirement number, Social Security benefits can provide additional income during retirement.
A retired couple today can expect to receive around $2,739.10 per month on average from Social Security. This is because it combines the benefits of two people:
Retired Worker: The average retired worker receives around $1,845 per month in retirement benefits as of November 2023.
Spousal Benefit: The average spouse of a retired worker receives around $886 per month in spousal benefits.
Hence, if a couple retired with $1.46 million and collected an average payment from Social Security, they would have about $7,600 per month to spend. This is $4,867 from investments and the $2,739 from Social Security. All in, over $90,000 per year.
Big Impact – Where You Live
Living costs vary greatly depending on location. A million dollars might stretch much further in a low-cost area compared to a high cost of living city.
Location plays a significant role in how much you’ll spend during retirement.
Here’s how costs can vary:
Housing: Housing is often the biggest expense for retirees. Here’s how location affects it:
Cost of Living: Generally, areas with a higher cost of living have pricier housing. Think big cities compared to rural areas.
Property Taxes: Property taxes vary greatly by state and locality. Some states have much lower property taxes than others.
Home Prices: Buying a home outright or having a lower mortgage payment frees up more retirement income. Locations with lower home prices can be advantageous.
Taxes: Taxes can also differ by location:
State Income Taxes: Some states have no income tax, while others have a progressive income tax structure. This can significantly impact your retirement income.
Sales Taxes: Sales taxes vary by state and even locality. Areas with lower sales taxes allow you to stretch your retirement dollars further.
Other Expenses: Beyond housing and taxes, other daily expenses can be impacted by location:
Utilities: Energy costs can vary depending on climate. Heating costs might be higher in colder areas, while cooling costs might be higher in warmer climates.
Transportation: Public transportation options and car-dependency can influence transportation costs. Densely populated areas with good public transport can be cheaper than car-dependent rural areas.
Groceries and Everyday Goods: Grocery prices and the general cost of living can vary by location.
Resources for Researching Retirement Costs by Location:
Cost of Living Calculators: Websites like https://www.nerdwallet.com/cost-of-living-calculator/compare/seattle-vs-boston allow you to compare the cost of living between different locations.
By understanding how location impacts retirement costs, you can make informed decisions about where to live and how much to save for a comfortable retirement.
Retirement Number Conclusion
On average, Americans have ambitious goals for retirement savings. Surveys suggest they believe they need between $1.46 and $1.8 million to retire comfortably.
It’s important to remember these are just averages, and the actual amount can vary depending on individual circumstances.
These numbers highlight that many people aim high for retirement savings.
However, it’s crucial to consider these points:
Individual Needs: Your ideal retirement savings depend on your desired lifestyle, planned retirement age, location, and even health factors.
Surveys vs. Reality: Survey results might not reflect actual needs or consider factors like Social Security or pensions.
Financial experts often recommend focusing on strategies instead of a magic number like the ones found in surveys.
These strategies could involve:
Replacing a percentage of pre-retirement income (like 80%)
Saving a specific multiple of your final salary (like 10 times)
See our “How Much Wealth Do Should You Have” series.
By considering your personal situation and using resources like retirement calculators or consulting a financial advisor, you can develop a personalized plan to achieve a comfortable
