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Everyone is searching for that magic number.
Increasingly, the drumbeat of financial advisers who say $1 million won’t be enough for retirement is growing louder. On Monday, Real World Investor released research estimating that Americans will need more than $1.1 million in additional savings to retire comfortably in 20 years. The data suggest that inflation, longer lifespans and rising costs of living all play a role.
“This data shows the true cost of retirement in America, which unfortunately many Americans are unprepared for,” said Adam Koprucki, founder of Real World Investor, an investing website. “A comfortable retirement requiring $50,000 per year for 25 years means saving over $1.25 million, an amount that seems out of reach for many.”
My gut reaction is probably not dissimilar to many people’s response: We’re living in “end times” when you can’t retire on $1 million, particularly when most people in their 50s and early 60s have roughly half that. It’s true: $1 million can’t buy what it used to. The most stark realization of this is in real estate. In more than 230 U.S. cities, even a starter home costs an average of $1 million, according to Zillow Z.
Overestimating the amount of money you’ll need at age 67 may actually be a good thing.
My second thought, which does not pre-empt the first: The $1 million debate all depends on your lifestyle, where you live and your longevity. If you’re living in New York City, and your monthly expenses are $5,000 or more for utilities, property tax, maintenance fees and other expenses, $1 million isn’t going to feel like a lot of money if you’re planning to live into your 90s.
My third response: We constantly underestimate inflation. It’s the dry rot that eats away at your dream home when you’re busy making plans for all that money you put aside for leisure during your retirement. At 2% annual inflation, the Federal Reserve’s target rate, that $1 million would be worth $552,000 in 30 years. At 4%, it would be worth 4% closer to $308,300.
Three things are sure in life: death, taxes and inflation. The latter has pushed up the amount of money you need in order to retire comfortably to $1.26 million, according to the 2025 Planning & Progress Study by Northwestern Mutual. That report had remarkably similar findings, but it was also surprising: The figure for 2025 was actually lower than the $1.46 million retirement goal quoted last year.
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When retirement goals hit $1 million
The “magic number” for retirement surpassed $1 million in 2021, up from $950,800 in 2020, Northwestern Mutual said. Inflation surged in the months during the COVID-19 pandemic and people had even more cause to worry about how much they would need to retire. For that reason, overestimating how much you’ll need at age 67 may actually be a good thing.
Timing is everything, including when you start saving for retirement and when you answer a question about how much you’ll need in retirement. The goal posts keep moving. If you’re following the latest world events — from last weekend’s U.S. bombing of Iran to the war in Ukraine and instability in the Middle East — you may give a different answer today than you would a week, a month or a year ago.
Northwestern Mutual found that eight in 10 adults said their vision of retirement is different from how their parents viewed it. Nearly one-third said they expect their retirement to last over 10 years longer than their parents’ generation. People now expect more travel, more personally fulfilling activities, more time with friends and family and, yes, more work to pay for all of it.
The first rule of retirement savings: There is no ‘magic number’ for everyone.
There is no “magic number” for everyone. We are all living in our own version of “end times.” Our expectations for retirement are altered by the hall of mirrors that is social media. We live in a society where it’s normal to spend $4.70 on an iced coffee even though we can make it at home for pennies. If you live in Panama or Portugal, $1.26 million is going to take you a lot further than if you lived in Manhattan or Miami.
It has become popular to speculate about how $1 million won’t get you through retirement. This guide by GoBankingRates rattled through every U.S. state to determine how long you would burn through $1 million in retirement. In Hawaii, the answer was seven years, but in West Virginia, it would take 24 years. This factored in cost-of-living indexes for healthcare, housing, utilities, transportation, and groceries, among others.
But it obviously doesn’t take account of Social Security benefits — the average payment currently hovers at $2,000 a month — Medicaid and Medicare; and other likely scenarios like having your house paid off by the time you reach retirement age. (Roughly 63% of people have paid off their homes by the time they reach 65, according to the Census Bureau.)
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Aspirations, like inflation, are higher
One member of the Moneyist Facebook Group recently asked these questions about the “magic figure” for retirement and what people believed was the new benchmark if it wasn’t $1 million. When they were growing up, they said $1 million was the golden key to a happy, carefree life. “If you had that amount of money you would just retire,” they said.
“Now I feel like $1 million won’t get you that far,” they added. “It is not the end all be all that it used to signify. I am not sure if it is just me who feels this way and maybe because I live in Los Angeles where housing prices are astronomical and lunch is $20-plus, or maybe I was just really naive as a younger person, and didn’t know how much everything costs.”
The answer, of course, is yes, yes, yes and yes. If you live in LA, $1 million is not going to take you as far into your retirement as if you lived in Lima or Louisiana. Retirement is deeply personal and tailor-made for each person. The goal is to increase savings while we’re working, but also to ensure we are as close to debt-free as possible.
Retirement finances are deeply personal and tailor made for each person.
Some of the answers to that post were illuminating. One woman said, “I get $1,736 a month in Social Security Disability Insurance and am taking $1,500-a-month distribution out of a $300,000 IRA. Without my daughter I would be living in subsidized housing. Instead, we just closed on a small house and we are splitting all expenses.”
For her, $1 million would be life-changing, but it’s also a dream rather than a reality. If she had $1 million saved for retirement?
“We could build the garage we don’t have. I could take that long desired cruise to the U.K. and buy a nice wardrobe to wear on the crossing.” But here’s the best part: “That million dollars will never happen for me — and I’m okay without it.”
Another man wrote that people’s aspirations have become unrealistically high: “Whoever thought that buying a $600-plus phone for a teenager to carry around (and lose or drop) would be normal? Debatable, maybe, but normal? Many things and activities that used to be considered luxuries are now taken for granted. Required, even. I’m not saying that these changes are good or bad. They just are.”
Don’t allow a magic number to make your retirement goals disappear.
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