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You do not need $1,000,000 to retire or $1.5 million or any number some expert throws out on YouTube or social media. Those numbers are generated by people selling advice, investments or videos.
Having a simple dollar target makes planning appear easy, but IMO more likely to scare people into inaction because they see an impossible quest. Besides, we know very few people come near that amount and given they still retire, demonstrates the value of such assumptions.
The median household retirement savings for Americans aged 65-74 is around $200,000. The average, or mean, household retirement savings for this same age group is considerably higher, around $609,230.
According to data from DQYDJ (2024), the median individual income for a 60-year-old in the U.S. is $60,000. Meanwhile, the average (mean) individual income at age 60 was reported as $81,424
What you need is an amount in retirement investments that when combined with Social Security and other steady income sources will generate the income you determine is needed to live as you choose. HD readers mostly know this, but I suspect the wider population does not.
Aside from a person’s lifestyle, the number you need to accumulate as retirement investments depends on:
Your annual total income objective in retirement
Your age at retirement
If you have a pension or annuity?
Your household Social Security benefits **
What withdrawal percentage are you comfortable using?
Do you have income for a survivor to consider
A strategy to cope with inflation
** As of January 2025, the average monthly Social Security retirement benefit for an individual retired worker at FRA (typically 66 to 67, depending on birth year) is approximately $1,976. For a household, this amount can vary. If both spouses are eligible for Social Security, the household benefit could be roughly double this amount, assuming similar earnings histories. Or, the total benefit could be about 1.5 times the individual earners benefit.
So, even though I don’t know how to use a spreadsheet, it appears the equation may be something like this.
Feel free to jump in.
Pre-retirement income X % = desired retirement income – pension or annuity $ – household SS benefit /.04
Thus $60,000 X 80%= $48,000 – $0 (no pension) – $23,712 SS benefit = $24,288/.04=$607,200 needed for retirement assuming a 4% withdrawal rate.
Needless to say, mess with any of these assumptions (a pension changes a lot) and you get a different answer – and that’s the point after all. You can always get a different answer.
But what if you are already to the plus side of these amounts?
Thanks Mr. Quinn for another interesting read.
I think this is a good example of how perfect can be the enemy of good.
In this instance, “perfect” entails spending a lot of time and effort to educate yourself on personal finance and retirement planning, gathering all the necessary information, then completing necessary calculations / modelling to determine your retirement plan. Or paying for a professional financial planner to do this for you.
In reality most people will regard this as too difficult or too costly. And therefore do nothing.
Which is where your simple calculation is so valuable. It is quick, easy and gives a very good starting point. It certainly isn’t perfect – there are many, many other factors to consider. But it is far more likely to be actually used.
(Apologies in advance, another ramble about Australian superannuation – tune out now if this is boring!)
In Australia, every working person has to put 12% of their ordinary time earnings into their superannuation account. To help guide ordinary Australians as to what they might need to retire, the Association of Superannuation Funds Australia (ASFA) publishes a simple guide for the recommended savings required for either a modest or comfortable retirement.
https://www.superannuation.asn.au/consumers/retirement-standard/
This guide is far from perfect. It includes lot of assumptions and simplifications. It does work better in Australia because we don’t have a social security system like the US, and very few people have pensions. So there is a lot less complexity.
But the point remains – an imperfect but useful guide is a whole lot better than a very elaborate and sophisticated model that never sees the light of day.
What many fail to realize is that those calculations of 4% or whatever ‘experts” recommend seem to always discourage spending any principal. For example, using Dick’s numbers, if someone has $607,000 saved, even if it was simply in cash or under their mattress, taking out the $24,288 would last 25 years. So, if this money is just earning money market rates below the 4% in his example, the income could be supplemented by taking out some principal. It is OK to spend down the money you spent your whole life accumulating.
Many people are familiar with the SWR as a capital preservation strategy. In a U.S. context, the only capital depletion strategy is arguably the RMDs that U.S. citizens are required to take, assuming they actually consume the distribution instead of saving it.
Don’t forget that this problem really requires that the difference between what you have available to spend and what you actually spend should be greater than zero, and the higher the better.
So, a good part of the analysis requires an assessment of the spending side.
One needs to know where he or she can trim spending, and reduce charges that can’t be avoided. The biggest expenses in retirement tend to be taxes (mainly income and property) and for many, health care. If you own a house, those expenses can be sneaky high. Insurance is usually a burden. After that, almost everything else is negotiable.
Are you assuming preservation of capital is the most important thing? Not for everyone.
OK, as somebody who has many advanced degrees in statistics and economics, I winced at your misunderstanding of the difference between mean and average. But for your analysis, it is of a little importance. A mean is where 50% of the people are above a specific number and 50% are below that number. Average is when you add up all of the people and divide by the number in the population. One or two outliers can’t significantly affect the value of an average whereas the mean may tell you what most people actually experience. For example, I was at a party last month where Jackie Marrs Was in attendance. Her $55 billion net worth made the average net worth of everybody in that room arround $660 million. I suspect that The mean net worth was probably under $1 million.
my other comment is that one needs to worry about inflation in coming years. The actual 4% rule that is used by many planners says that 4% is the starting point for withdrawals from your portfolio. Withdrawals in future years are increased by the rate of inflation.
But these are details. The idea that you don’t need one, two or $3 million to retire, is a correct assumption for most of us. if you have paid off your mortgage, your living costs go down substantially.
Mean and average are terms that describe the same thing (add up the numbers in a set and divide the sum by the total count of those numbers). Median is the term that describes the middle value in a series of numbers.
You wrote: A mean is where 50% of the people are above a specific number and 50% are below that number.
That is the definition of median, not mean/average.
edit: fixed a typo
The mean (arithmetic, geometric, harmonic, logarithmic), median, and mode are all measures of the average. The most appropriate measure of the average value depends on what you are measuring.
Fair enough. But my point about the definition of median stands.
Correct. It would have been better if I had replied directly to Bob Zwick. In addition to confusing the median with the mean, his statement about outliers is incorrect.
Oh wow. It sure is!
Personally, I always started this sort of mental exercise by looking at both current expenses and projected retirement income and creating this SWAG: Income-expenses=gap x 30. Not meant to be precise just a SWAG.
RQ
good article as ALL of yours are even if I disagree gives me another viewpoint
for us there is no magic number ……..as long as we have a positive cash flow and an emergency fund I feel we will be fine
I agree your analysis is a good start, and I would add the following:
Covering monthly expenses is a necessary start, but there are many unexpected expenses (and inflation) throughout retirement.
Yes. The equation is great, but there are many more things to consider.
But the issue was determining how much you need, not how to get it.
Very good analysis. In retirement, I first focus on expenses: essentials (food, insurance, taxes, etc.), healthcare, and then lifestyle items like travel or gifts. I match my essential expenses with inflation-protected income sources—Social Security, I-Bonds, TIPS, and so on. That way, I have a clear picture of the “rest of the portfolio,” which I can use more flexibly for lifestyle choices depending on market returns. The one area that still worries me is age-related shocks, like long-term care. My only fallback plan there is tapping home equity.
And at some point, Medicaid if assets are low enough. Please investigate that before you tap home equity, especially if you’re married. In Illinois a spouse has the ability to reside in the home while the other spouse is in a nursing facilty, so check your state’s rules.
This was good, Dick. We had no idea how much to save, to be honest, we just did, even though it was not enough at first. I think your post will help any young people who are reading HD. It is a lot of common sense.
One thing I did want to mention was when I started looking at SS claiming for us. For many years, I was thinking we would get a lot less in SS than we ended up getting. I am guessing I was doing the calculations wrong? Chris
Chris,
Regarding your last sentence. The best way to determine what future social security income will be is to go to ssa.gov the Social Security website as your account will display your projected monthly income at different ages such as 62, full retirement age, and 70. Back when we were utilizing a fee only financial advisor the projected income was different. In their calculations they projected inflation adjustments so the SS income was higher than the Social Security Administration’s projection. I suppose if someone is proficient with spread sheets (which I am certainly not) you could take the SSA’s number and add in an inflation adjustment.
Thank you so much, David. I did finally get smart and we set up the SS online accounts when we were around 62. Before that, SS had been sending the mail estimators for awhile and I used those. They quit sending, I guess b/c of cost and the problems some post offices started having with reliability. We got better numbers then after we set up the accounts. The young people shouldn’t have this problem, so that is good.
As an aside, I think it is sad that people have to worry about mail getting stolen. The post office used to be one of the most trusted govt agencies. Chris
Richard,
Excellent analysis!!!!
If you’re including pension income some allowance needs to be made for the effect of inflation. My pension is worth only about half of what it was 25 years ago, and I may well have another 15 years to go. Or more…
Yup, that was in my list.
Of course, there’s nothing bad about having millions of dollars, if you can manage it. Many prudent retirees have ended up with more money than they ever thought possible. Every dollar you put into the stock market 30 years ago might now be $20, $30, or $50.
This is a great addendum to the How Mush to Save post. Those tables are useless, except maybe as a sales tool. I also agree that people can be scared into doing nothing when the goal appears unachievable. I’ve actually used your equation in the past.
One might still need a spreadsheet and a little financial education. The way $602K looks today to an age 30 worker will look different 37 years later when he/she/they call it quits.. How much must the worker save from each paycheck? How to invest? Where to invest?
And it didn’t go unnoticed that you used 80% in your example😁
Dan, I’m thoroughly confused. I really hesitated to comment, not wanting to start something. But I’m cursed with the need to check the numbers.
The tables in the How Much to Save referenced article uses virtually the same methodology as this post. The main difference I can see is that this post used a generic $48,000 for yearly expenses. The Kiplinger article used actual expense data by state. For example, for WVA it used a $50,954 assumption for yearly expenses. They also used slightly different SS assumptions. Using the same 4% withdrawal rate the Kiplinger article came up with a $712,913 savings requirement. As far as I can tell, there is no meaningful difference in the Kiplinger article and the information provided in this post.
Rick,
You should never hesitate to comment. Your comments are always insightful.
Right you are Rick, the math is the same, but math doesn’t consider an individual’s situation. As I stated in the other post, a resident of West Virginia with a boatload of debt may need more than a guy in Hawaii living in a paid off cottage underneath a volcano.
Cheryl Low’s excellent post goes into greater detail, and better explains why I don’t care for the tables.
Dan,
Sorry for my response. I was thinking of a broader point and should not have responded to your post. I find myself increasingly out-of-step with the direction of the forum. Something for me to think about.
I also look forward to your comments and articles. And I’m glad you commented, as I had the same thought.
Rick, I always look forward to your comments. You think of things in a different way than I do and I learn from you. Chris
RDQ, any chance you came across the median SS benefit? My quick online search only returned stats for the average benefit…
I tried but there doesn’t seem to be a reliable number.
Your analysis is spot-on, and as you said, you’re preaching to the choir. The only downside I can conceive of is if social media ranters internalize the fact that median retirement wealth is $200,000 and sensationally announce that’s all someone needs to save for retirement. A possibility I wouldn’t be surprised about if it occurred.
I would’ve petrified to have retired with only 200K in wealth in retirement, and our annual expenses are only about 60K per year which I assume is on the low side.
Nothing on social media surprises me these days. I find what i read very depressing. The level of subject ignorance is appalling.
Dick, all the key points are spot on. It really starts with estimating what your retirement spending will be. Once that’s clear, I look at it as “backing into your number” based on the calculations you outlined. In that context, working a bit longer and delaying Social Security can make a lot of sense if savings are on the lower side.
The one area I think is worth highlighting — and you didn’t touch on is part-time work. Even something like 15 hours a week can make a huge difference in stretching retirement dollars.
A valid point and i can understand why many people would want to work part time in retirement, but it seems to me, retirement should not be based on that as a necessity.