Is a $1 Million Retirement Goal Enough?
Joy Wallet is advertiser-supported: we may earn compensation from the products and offers mentioned in this article. However, any expressed opinions are our own and aren't influenced by compensation. To read our full disclosure, click here.
Having a million dollars saved for retirement sounds like enough for a comfortable retirement. It’s a big, round number that you might think would fund a nice lifestyle without worrying about running out of money.
Not many retirees end up having that much money. According to the Federal Reserve, only about 10% have $1 million or more in savings.
Most retirees have far less saved. Among all adults, the median retirement savings is $65,000. However, the Federal Reserve estimates that by retirement, that amount should grow to an average of $255,200, thanks partly to the power of compounding.
Either way, most people are far short of a $1 million goal when they retire.
Jump To
How much money do you need in retirement?
Saving $1 million is a good goal, and it should be enough money to fund a nice lifestyle for most people. We’ll get into some of the major expenses in retirement later, but an overall expense that people doing their retirement planning should first consider is what type of lifestyle they want when they retire.
Even with $1 million in savings, they could still come up short if they have a high-spending lifestyle with lots of travel, expensive hobbies, or are supporting a child or grandchild.
A more modest retirement budget of $500,000 can be possible if you move to another country or a cheaper area in the U.S. where housing, utilities, food, health care and other costs are more affordable.
Use Bankrate to Start Investing Now
- Compare dozens of trusted finance apps and websites that help you start investing
- Get Bankrate's quick summary of each product
- Each product is carefully reviewed by experts so you know you're in good hands
- Invest on your own, with an advisor, or with a robo advisor
A good rule of thumb for how much you need
One rule of thumb on how much to save for retirement comes from Fidelity: Save 10x your income by age 67. If you earn $50,000 annually, then having $500,000 saved by age 67 is recommended. Here are it’s guidelines:
- Save at least 1x your salary by 30
- 3x by 40
- 6x by 50
- 8x by 60
- 10x by 67
The rule assumes that a person will:
- Save 15% of their income annually at age 25, including any employer match.
- Invest more than 50% on average of their savings in stocks over their lifetime.
- Retire at age 67.
- Maintain their pre-retirement lifestyle in retirement.
A similar rule of thumb is to save 10% to 15% of your salary each year. Such a savings rate with a low-fee retirement account that earns inflation-beating returns should get you a comfortable retirement.
The 4% rule
A popular rule of thumb for retirement planning is the 4% rule. You add up all of your investments and withdraw 4% of that total during the first year of retirement. You adjust the amount withdrawn annually to account for the inflation rate every year after that.
This formula has a very high probability of you not outliving your money during a 30-year retirement, according to Charles Schwab, a financial services company.
It gives the example of having a retirement portfolio of $1 million. The 4% rule recommends withdrawing $40,000 in the first year. If the cost of living rises 2% that year, you’d give yourself a 2% raise the following year, withdrawing $40,800, and so on for the next 30 years.
It’s a rigid rule, but has a very high likelihood that your portfolio will last for 30 years.
Spending usually decreases in retirement, in what’s called the “80 percent rule.” It states that retirees should plan on living on 80% of their pre-retirement income to maintain a similar style. So if you earn $100,000 per year, an annual retirement income of $80,000 should keep you at a similar lifestyle because expenses usually fall in retirement.
If you follow the 4% rule, Schwab recommends updating it yearly to a personalized spending rate that could allow you to withdraw more than 4%, depending on your circumstances.
When do you plan to retire?
The age you plan to retire at can greatly impact how much you need to save throughout various stages of life. The longer you can put off retirement, the less money you ’ll need to save.
Delaying gives your savings a longer time to grow, you’ll have fewer years in retirement, and your Social Security benefit will be higher.
Fidelity Investments gives the example of someone waiting until age 70 to retire needing only 8x their final income to sustain their pre-retirement lifestyle, instead of the 10x they’d need to retire at 67.
Someone retiring two years earlier at 65 would need more money: 12x in pre-retirement income, Fidelity recommends.
The average American hopes to stop working at 62, CNBC reports. That’s the earliest age allowed to start collecting Social Security benefits. Starting benefits that early will permanently reduce their monthly checks.
To get 100% of the benefits they earned, retirees should start claiming Social Security at 67, which is the full retirement age for many people, depending on when they were born.
Plans can go off course, requiring you to retire earlier than expected. Unforeseen health problems or losing a job late in life may cause you to tap your retirement funds sooner.
Retiring earlier than age 62 is a generational thing for some people. Baby boomers expect an average retirement age of 68, according to a survey from Natixis Investment Managers cited by CNBC. But younger generations planned to retire earlier.
The youngest, Generation Y — ages 25 to 40 — planned to retire at an average age of 59. Generation X — now 41 to 56 — planned to retire at 60.
Use Bankrate to Start Investing Now
- Compare dozens of trusted finance apps and websites that help you start investing
- Get Bankrate's quick summary of each product
- Each product is carefully reviewed by experts so you know you're in good hands
- Invest on your own, with an advisor, or with a robo advisor
How long will you live?
Retirement planning should include an estimate of how long you’ll need retirement savings. In other words, what’s your life expectancy?
This isn’t a fun calculation, but it can be done quickly by finding a life expectancy calculator online. The Social Security Administration has one that shows the average number of additional years someone can expect to live, based only on sex and date of birth from its life expectancy tables.
The SSA calculator doesn’t consider factors such as current health, lifestyle, and family history that could raise or lower life expectancy. Life insurance websites sometimes have such calculators.
A healthy life expectancy calculator for actuary research at the University of Connecticut asks for such information as:
- Education
- Annual income
- Exercise
- Current health level
- Diet
- Sleep
- Smoking
- Driving history
- Alcohol
According to the Centers for Disease Control and Prevention, the average person born today lives for 77.3 years: 74.5 years for men and 80.2 years for women. If your grandparents, parents and others in your family have lived long lives, you too could live into your 90s and 100s, depending on your lifestyle.
How much does the average person save for retirement?
There can be a big gap between what experts recommend as a retirement savings goal and how much people are actually saving. We’ve already gone over how much people should have saved at different ages — such as three times your annual salary by age 40, or 10x by age 67.
The average retirement savings is $98,800, according to Northwestern Mutual’s 2021 Planning and Progress Study. That’s up 13% from $87,500 in 2020.
Keep in mind that those are averages, and represent all age groups. How much actual retirees have when starting retirement is usually higher. An analysis by Western & Southern Financial Group found that the average savings for people over 65 is $216,720.
That’s less than half as much recommended in our first rule of thumb to save 10x your last annual salary by age 67. The median salary for Americans 65 and older is $52,936 per year, so a 65-year-old should have $529,360 saved.
Use Bankrate to Start Investing Now
- Compare dozens of trusted finance apps and websites that help you start investing
- Get Bankrate's quick summary of each product
- Each product is carefully reviewed by experts so you know you're in good hands
- Invest on your own, with an advisor, or with a robo advisor
Where retirement savings can come from
Your nest egg for retirement will likely come from multiple income sources. You should discuss your risk tolerance with your financial advisor, since some investments will have higher volatility and potentially earn you more than others.
Here are some income sources in retirement that can improve your personal finances:
Retirement accounts
Your financial planning for retirement should include at least one of the two main types of retirement plans: 401(k)s and IRAs. Both usually let you invest in the stock market, where you can choose investments.
In a traditional 401(k) plan, an employee contributes with pre-tax wages, meaning they’re not taxable income until withdrawn after age 59-1/2.
A Roth 401(k) allows employees to contribute after-tax dollars, and gains aren’t taxed when withdrawn during retirement. Both plans may include a match on contributions from employers.
IRAs are tax-advantaged plans that help save for retirement with pre-tax dollars. Contributions to a traditional IRA grow tax-free until they’re withdrawn at retirement when they become taxable.
A Roth IRA is another option. Contributions are made with after-tax money, meaning you’ve already paid taxes on money put into the account. No taxes are paid if you withdraw the money at age 59-1/2 or later.
Annuities
Retirement annuities promise guaranteed monthly or annual income for retirees until death. They’re usually funded through a lump sum or regular payments years in advance. Annuities pay fixed, variable, and indexed rates of return.
Annuities are like an insurance contract, except they provide income over your life and ensure you won’t outlive your retirement savings.
Social Security income
The Social Security Administration (SSA) allows users to check their Social Security account to see how much they’ll get when applying between age 62 and 70.
The benefit amount is based on your “full retirement age,” between ages 66 and 67. Taking benefits sooner will lower your amount while waiting until age 70 will get you the highest payment to help you reach your financial goals.
The average monthly Social Security retirement benefit is $1,632 as of November 2022, according to the SSA.
Expenses in retirement
Data from the Bureau of Labor Statistics shows the average retired household spends 25% less than the average working household. That means needing 75% of your pre-retirement income in retirement, though many retirement guidelines suggest needing 80%.
Areas, where expenses should fall in retirement, include:
- Transportation
- Clothing
- Entertainment
- Food
- Housing
- Education
- Insurance
- Taxes
- Pets
As we detailed earlier, if you maintain the same standard of living in retirement as you did during your working years, you save 10x your annual salary by age 67. You should be able to afford a similar style of living when you’re retired.
Government data shows monthly expenditures average $4,345 for people 65 and older. That includes rent, healthcare, groceries, and other living expenses.
Use Bankrate to Start Investing Now
- Compare dozens of trusted finance apps and websites that help you start investing
- Get Bankrate's quick summary of each product
- Each product is carefully reviewed by experts so you know you're in good hands
- Invest on your own, with an advisor, or with a robo advisor
How to delay retirement and save more
Retirement may be longer than you think, or you may need to save more by the time you want to retire. Women live longer than men, and one out of every three 65-year-olds today will live until at least 90, and one out of seven will leave until at least age 95, according to the SSA. Social Security benefits last as long as you live.
Two options are to work longer and to delay Social Security benefits. Working until age 70, when you can get the highest Social Security benefit, means earning more and saving less for retirement.
Social Security benefits increase monthly from age 62, when you can start claiming them, until the maximum retirement age of 70. It gives the example of a 70-year-old receiving 77% more than someone starting benefits at age 62 — a difference of $540 each month.
It assumes a benefit of $1,000 at a full retirement age of 67. The retiree would get $700 monthly if they started benefits at age 62, while a 70-year-old would get $1,240 monthly.
Retirement Calculator
Pay off mortgage early
Housing takes up the largest share of the household budget for older households, according to federal government data. About half of retirees have a mortgage.
Paying off your mortgage before you retire can cut a major expense. Home insurance and taxes, among other expenses, won’t go away when you pay off your mortgage, but your living expenses will undoubtedly go down.
Increase retirement contributions
This may sound easier than it is, but if you’re behind on contributions to your retirement accounts, no matter what age you are, you can try to increase them and get back on track. Start by looking at your total retirement savings and if it’s about what it should be at your age: 3x your annual salary by age 40, for example.
If not, see if you can afford to contribute the maximum amount so you’ll at least get your employer match if one is offered. If you get an annual raise at work, increase your retirement contribution by the same amount.
Costs
The main costs of saving for retirement are fees in retirement savings plans. 401(k) plan fees range from 0.2% to 5%. All fees must be disclosed in a prospectus you get when you enroll in a plan and must be updated every year.
Pros and cons
Pros
- A $1 million savings goal isn’t needed for a comfortable retirement.
- A good rule of thumb is to save 10 times your last annual salary by age 67 to keep a similar standard of living in retirement. A $70,000 yearly income equates to needing $700,000 by age 67.
- Delay receiving Social Security benefits from age 62 to 70, and your benefits could grow 77%.
Cons
- The median retirement savings is $65,000.
- If you don’t save during most of your working for years for retirement, you can be far behind your savings goals.
- Longer lifespans mean more years needing an annual income in retirement.
Use Bankrate to Start Investing Now
- Compare dozens of trusted finance apps and websites that help you start investing
- Get Bankrate's quick summary of each product
- Each product is carefully reviewed by experts so you know you're in good hands
- Invest on your own, with an advisor, or with a robo advisor
The bottom line
One million dollars isn’t required to have a good retirement. You may be OK with just half that amount saved when you retire, depending on where and if you can cut expenses. Even without cutbacks, you should be able to live a similar lifestyle as a retiree as you did when you were working.
Still, $1 million is a good goal to have for retirement. It can lead to a more luxurious retirement and give your survivors a nice windfall. But don’t think of it as a requirement for retiring. It’s a good spot to aim for, but not the only one.
Joy Wallet is an independent publisher and comparison service, not an investment advisor, financial advisor, loan broker, insurance producer, or insurance broker. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. Joy Wallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. We encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Featured estimates are based on past market performance, and past performance is not a guarantee of future performance.
Our site doesn’t feature every company or financial product available on the market. We are compensated by our partners, which may influence which products we review and write about (and where those products appear on our site), but it in no way affects our recommendations or advice. Our editorials are grounded on independent research. Our partners cannot pay us to guarantee favorable reviews of their products or services.
We value your privacy. We work with trusted partners to provide relevant advertising based on information about your use of Joy Wallet’s and third-party websites and applications. This includes, but is not limited to, sharing information about your web browsing activities with Meta (Facebook) and Google. All of the web browsing information that is shared is anonymized. To learn more, click on our Privacy Policy link.
Images appearing across JoyWallet are courtesy of shutterstock.com.
Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
Share this article
