Do You Really Need $1 Million to Retire?

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It’s been at least 20 years since $1 million became the “default” retirement savings goal. Somehow, a lot of people agreed that we needed to save at least that much to get by in retirement.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
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Click here to read our full review for free and apply in just 2 minutes. If they were right, then we’d need to save much more today. Inflation has driven prices up more than 60% over the past two decades.The truth is that even in 2025, most Americans in their mid-60s could get by on less than $1 million if they retired now. However, many would have to make sacrifices and live frugally to make sure their savings never ran out.Let’s go over how to figure out how much you really need to save.Start with your target incomeDecide how much income you’ll need to live the lifestyle you want in retirement. Keep in mind that most people spend less in retirement — partly because they’re no longer saving for retirement, but for other reasons as well.For example, here are some reasons you may not need as much income:You’ve paid off your mortgageYou’ve downsized your homeYou’ve moved to a low-cost-of-living areaYou no longer need to commute to work every dayAll these factors and more can dramatically reduce your spending.At the same time, you should plan for your medical expenses to go up. Fidelity Investments estimated that an average 65-year-old retiring in 2024 would spend about $165,000 on healthcare throughout retirement. Some retirees will spend much more than that, especially if they need long-term care.And if you plan to live it up in retirement — say, by traveling the world or enjoying a high-cost hobby — then you’ll need to account for that as well.Most people can safely assume they’ll need to replace about 80% of their pre-retirement income to maintain their standard of living. Some need less than that, but it doesn’t hurt to aim high.Don’t forget Social SecurityMost American retirees receive Social Security benefits. These can replace a substantial amount of your pre-retirement income — about 40% on average.If Social Security replaces 40% of your pre-retirement income, then you only need your savings to replace another 40% to reach that 80% goal. Don’t rely too heavily on Social Security, though. The program is not going to disappear or stop making payments, but there’s a chance that benefits will be reduced in some fashion in the future.To see an estimate of your future Social Security benefit, you can create an account on the Social Security Administration website.Use the 4% rule as a rough guideEmphasis on “rough.” The 4% rule came about in the mid-1990s, and it was never really intended to be a rule, though we call it one now.That said, it’s still not a bad starting point for figuring out 1) how much you need to save for retirement and 2) how much money you can safely withdraw from your retirement savings each year.The 4% rule says that you can safely withdraw 4% of your savings in your first year of retirement. Then, each year afterward, you adjust that amount for inflation.Say you have $1 million in savings. In your first year of retirement, you’d withdraw $40,000. If prices went up by 2% in that first year, then you’d increase your withdrawals by 2% to $40,800 the next year.Going by this strategy, it’s very unlikely that you’ll exhaust your savings.And if you want to use the 4% rule to decide your retirement savings goal, you simply multiply your target income — minus Social Security benefits and other income sources — by 25.Want to supercharge your retirement savings by investing in stocks and saving thousands in taxes? Check out our list of the best IRA brokers and open an individual retirement account today.The 4% rule is not fool-proofThere are a million reasons why the 4% rule may not work for every retiree.First, it assumes that your portfolio is evenly split between stocks and bonds. Many retirees have more conservative investments, which means less risk but also less growth.It also assumes you’ll be drawing down your retirement savings for up to 30 years. If you retire early, and/or you live much longer than the average person, then 4% per year may be more than you can safely withdraw.Further, the 4% rule assumes you’ll receive your full Social Security benefit — the amount you’ll receive if you claim benefits at your full retirement age (67 for most future retirees). If you claim benefits early and thus receive a smaller monthly benefit, then you may want to be more cautious with your retirement savings withdrawals.Example: Target retirement income of $60,000Let’s say your income right before retirement is $75,000 a year, and you want to replace 80% of that. That’s $60,000 a year.Let’s also say your expected Social Security benefit is $2,300 per month, or $27,600 per year. You’ll need your savings to provide $32,400 per year.Going by the 4% rule, you’ll need $32,400 x 25 — that’s $810,000 — in retirement savings.It’s far less than a million — but it’s still an ambitious target for many Americans.Don’t despair if you’re behindAs of 2022, the median retirement savings among Americans aged 65 to 74 was $200,000, according to the Federal Reserve. That means millions of American retirees are getting by on less money than the 4% rule suggests they need.Of course, many of them are on extremely tight budgets. If you want more security and financial breathing room, then save as much as you can now.A good retirement savings goal for most younger workers is 15% of their income, including any employer match. If you’re aged 40 or older and not on track to reach your savings goal, then now is the time to dig deep and save as much as possible — preferably 20% or more.Start with your 401(k), if you have one, and be sure to earn any employer match in full. Beyond that, look to an individual retirement account (IRA), which provides the same tax benefits as a 401(k). And if you max out your IRA, you can open a regular brokerage account and invest even more through that.All of these accounts let you invest in high-growth assets like stocks and index funds, as well as bonds and other low-risk assets. That means they give you a better shot at building the retirement nest egg you need.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.James McClenathen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.”}]] [[{“value”:”

It’s been at least 20 years since $1 million became the “default” retirement savings goal. Somehow, a lot of people agreed that we needed to save at least that much to get by in retirement.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

If they were right, then we’d need to save much more today. Inflation has driven prices up more than 60% over the past two decades.

The truth is that even in 2025, most Americans in their mid-60s could get by on less than $1 million if they retired now. However, many would have to make sacrifices and live frugally to make sure their savings never ran out.

Let’s go over how to figure out how much you really need to save.

Start with your target income

Decide how much income you’ll need to live the lifestyle you want in retirement. Keep in mind that most people spend less in retirement — partly because they’re no longer saving for retirement, but for other reasons as well.

For example, here are some reasons you may not need as much income:

• You’ve paid off your mortgage
• You’ve downsized your home
• You’ve moved to a low-cost-of-living area
• You no longer need to commute to work every day

All these factors and more can dramatically reduce your spending.

At the same time, you should plan for your medical expenses to go up. Fidelity Investments estimated that an average 65-year-old retiring in 2024 would spend about $165,000 on healthcare throughout retirement. Some retirees will spend much more than that, especially if they need long-term care.

And if you plan to live it up in retirement — say, by traveling the world or enjoying a high-cost hobby — then you’ll need to account for that as well.

Most people can safely assume they’ll need to replace about 80% of their pre-retirement income to maintain their standard of living. Some need less than that, but it doesn’t hurt to aim high.

Don’t forget Social Security

Most American retirees receive Social Security benefits. These can replace a substantial amount of your pre-retirement income — about 40% on average.

If Social Security replaces 40% of your pre-retirement income, then you only need your savings to replace another 40% to reach that 80% goal. Don’t rely too heavily on Social Security, though. The program is not going to disappear or stop making payments, but there’s a chance that benefits will be reduced in some fashion in the future.

To see an estimate of your future Social Security benefit, you can create an account on the Social Security Administration website.

Use the 4% rule as a rough guide

Emphasis on “rough.” The 4% rule came about in the mid-1990s, and it was never really intended to be a rule, though we call it one now.

That said, it’s still not a bad starting point for figuring out 1) how much you need to save for retirement and 2) how much money you can safely withdraw from your retirement savings each year.

The 4% rule says that you can safely withdraw 4% of your savings in your first year of retirement. Then, each year afterward, you adjust that amount for inflation.

Say you have $1 million in savings. In your first year of retirement, you’d withdraw $40,000. If prices went up by 2% in that first year, then you’d increase your withdrawals by 2% to $40,800 the next year.

Going by this strategy, it’s very unlikely that you’ll exhaust your savings.

And if you want to use the 4% rule to decide your retirement savings goal, you simply multiply your target income — minus Social Security benefits and other income sources — by 25.

Want to supercharge your retirement savings by investing in stocks and saving thousands in taxes? Check out our list of the best IRA brokers and open an individual retirement account today.

The 4% rule is not fool-proof

There are a million reasons why the 4% rule may not work for every retiree.

First, it assumes that your portfolio is evenly split between stocks and bonds. Many retirees have more conservative investments, which means less risk but also less growth.

It also assumes you’ll be drawing down your retirement savings for up to 30 years. If you retire early, and/or you live much longer than the average person, then 4% per year may be more than you can safely withdraw.

Further, the 4% rule assumes you’ll receive your full Social Security benefit — the amount you’ll receive if you claim benefits at your full retirement age (67 for most future retirees). If you claim benefits early and thus receive a smaller monthly benefit, then you may want to be more cautious with your retirement savings withdrawals.

Example: Target retirement income of $60,000

Let’s say your income right before retirement is $75,000 a year, and you want to replace 80% of that. That’s $60,000 a year.

Let’s also say your expected Social Security benefit is $2,300 per month, or $27,600 per year. You’ll need your savings to provide $32,400 per year.

Going by the 4% rule, you’ll need $32,400 x 25 — that’s $810,000 — in retirement savings.

It’s far less than a million — but it’s still an ambitious target for many Americans.

Don’t despair if you’re behind

As of 2022, the median retirement savings among Americans aged 65 to 74 was $200,000, according to the Federal Reserve. That means millions of American retirees are getting by on less money than the 4% rule suggests they need.

Of course, many of them are on extremely tight budgets. If you want more security and financial breathing room, then save as much as you can now.

A good retirement savings goal for most younger workers is 15% of their income, including any employer match. If you’re aged 40 or older and not on track to reach your savings goal, then now is the time to dig deep and save as much as possible — preferably 20% or more.

Start with your 401(k), if you have one, and be sure to earn any employer match in full. Beyond that, look to an individual retirement account (IRA), which provides the same tax benefits as a 401(k). And if you max out your IRA, you can open a regular brokerage account and invest even more through that.

All of these accounts let you invest in high-growth assets like stocks and index funds, as well as bonds and other low-risk assets. That means they give you a better shot at building the retirement nest egg you need.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.James McClenathen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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