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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 require