Looking to Retire With $1 Million? You May Need to Aim Higher

It’s hard to tell someone exactly how much they’ll need for retirement because personal situations will vary widely. Someone retiring in an expensive state like California who plans to travel often will probably need more than someone who wants to retire on a beach in North Carolina and simply relax.

$1 million has traditionally been a great threshold for many people to aim for when saving for retirement, but here’s why you may want to aim higher.

Find out how much you’ll need annually

One way to determine how much you’ll need in retirement is by first deciding how much you’ll need annually using the 80% rule. The 80% rule says you should plan to have 80% of your annual income in retirement to maintain your current lifestyle. Given that baseline, here’s how much annual retirement income someone should aim for based on their current income:

Annual Income Target Retirement Income
$50,000 $40,000
$75,000 $60,000
$100,000 $80,000
$150,000 $120,000
$200,000 $160,000

Data source: author calculations

It’s important to remember that these numbers are just baselines and should be adjusted to fit your situation. If you know you plan to upgrade your lifestyle in retirement, you should probably add to the 80%. If you plan to downsize your lifestyle, you can lower your needed percentage.

It would be best if you also considered Social Security when calculating how much you’ll personally need from your savings and portfolio. As of December 2022, the average Social Security monthly retirement benefit was just over $1,775, or $21,300 annually.

Determining how much you’ll need in total

The 80% rule is good for determining how much you need annually in retirement, but it doesn’t tell you how much you’ll need altogether. Luckily, there’s a rule of thumb that can help you with that: the 4% rule. The idea behind the 4% rule is that you should plan to withdraw 4% of your retirement savings annually (adjusting for inflation each year) without outliving your savings.

Using the 4% rule, you would multiply your ideal annual retirement income by 25 to get your target total savings. Here’s how that would look using our above example and including an average Social Security monthly payout:

Annual Income Target Retirement Income Net of Social Security Target Total Savings
$50,000 $18,700 $467,500
$75,000 $38,700 $967,500
$100,000 $58,700 $1.46 million
$150,000 $98,700 $2.46 million
$200,000 $138,700 $3.46 million

Data source: author calculations

Following the 4% rule guidelines, $1 million in retirement savings would only be ideal for someone making around $75,000 or less annually. For perspective, the median earnings of men and women who work full-time, year-round, are just over $53,500 and $43,300, respectively, according to the U.S. Census Bureau’s American Community Survey. And the median U.S. household income is $69,717.

That means a good number of Americans would need more than $1 million.

Adjusting with the times

Since it was introduced in the early 1990s, the 4% rule has been a great baseline for retirees. Here’s how someone would traditionally use it: If you have $1 million saved, you would withdraw 4% the first year ($40,000). If inflation rose by 2%, you’d then withdraw $40,800 the following year. If inflation increased by 3% the next year, you’d then withdraw $42,024. And so forth.

Although this method has traditionally worked, increasing withdrawals by large amounts to account for current inflation levels will increase the chances of someone running out of money. That’s why it may be best to lower the initial withdrawal closer to 3%. According to a recent Morningstar report, an initial withdrawal of 3.3% would give someone with a 50/50 stocks and bonds portfolio a 90% degree of certainty not to outlive their savings.

To accommodate current conditions, retirees can either drastically decrease their spending or aim for higher savings, with the former generally being the easier of the two.