How Much Do You REALLY Need To Retire?

How Much Do You Need to Retire? (0:00)

Bo: Do you know how much money you’ll need to retire? $1 million, $2 million, or is it even more? Helping our clients understand the path to financial independence is what I get to do every single day here at Abound Wealth. And today, I get to share that with you. So let’s talk about how much you really need to retire and what it takes to get there.

The Average American’s Retirement Picture (0:23)

Bo: When it comes to calculating your retirement needs, there are two big things that folks often completely disregard. But before we get to those, let’s see what retirement looks like for the average American. The median net worth for Americans in their 60s right now is $290,000. According to Empower’s most recent data, if someone retires with this amount, how much annual income would they actually have? At a 4% withdrawal rate, it would yield a little over $11,600 per year. That’s clearly not a lot of income, but it’s also not the whole picture.

The First Thing People Forget: Social Security (0:56)

Bo: That $11,600 doesn’t take into account one of the two big things that people often forget to consider when calculating their retirement number, and that thing is Social Security. It’s understandable why someone might not factor this in. Not counting it can be a way to ensure you’re not counting your chickens before they hatch, so to speak. And some people assume it won’t even be around by the time they retire. But for now, if you want an accurate number, we think it’s wise to include it in your calculation.

Bo: How much will your Social Security benefit be? Like most things in personal finance, it depends. You have some options about when you get to take it, and this can impact how much you receive. At age 62, it’s the earliest you can start receiving your benefits, but you’ll only receive about 70% of the benefit you would receive at full retirement age. At your full retirement age, which for most folks is around age 67, you’d receive 100% of your benefit. And if you wait until age 70, you would actually receive about 124% of your full retirement benefit.

Bo: We know right now that the average Social Security benefit in 2026 is $2,170 a month, or a little over $24,200 a year. Taking your benefits early at 62 would mean you’d receive about $1,400 a month or about $16,900 per year. If you wait until 70, your benefit would be a touch over $2,500 a month or just around $30,000 a year.

Bo: When we factor that into our prior example, taking Social Security at age 62 would yield a total annual cash flow of right around $28,500. At full retirement age of 67, that’s about $35,800. Or if you waited until age 70, it could produce about $41,600 of annual retirement income. It’s very unlikely that that level of income would sustain a comfortable retirement in the long term, even with a paid-off home. For the average American, we’d suggest saving well beyond this amount. By the way, we have a resource covering Social Security benefits available at moneyguy.com/resources.

Retiring with $1 Million (3:28)

Bo: Let’s see what it looks like to retire with $1 million invested. A 4% withdrawal rate gives you $40,000 per year from your portfolio. If you add Social Security to the mix, taking it at 62 brings your annual income to about $56,900. At 67, it’s about $64,200. And if you wait all the way until 70, it could be an annual income of $70,000 a year.

Bo: At this level, you’re getting closer to what most would consider an average middle-class retirement lifestyle. You’ll have enough to cover your basic needs comfortably, especially if you have a paid-off home. But this probably isn’t the retirement where you’re taking luxury cruises every year or eating at high-end steakhouses all the time. Think modest travel, occasional treats, and a generally comfortable but not extravagant lifestyle.

The Second Thing People Forget: Inflation (4:35)

Bo: This is where we run into the second big thing that people generally forget about when it comes to retirement: inflation. $1 million now is not the same as $1 million 20, 30, or even 40 years from now. If you’re nearing retirement, this isn’t a huge concern. But if you’re young and just starting out, it is a much bigger deal. Let’s say you’re 35 years old today and you plan to retire at 67 with $1 million. If we assume a 3% inflation rate over that 32-year span, that would bring your total annual retirement income to under $40,000 in today’s dollars. Remember, we were assuming it would be $64,000 today, and that’s including your Social Security benefit. Make sure you take inflation into account when thinking about your own retirement number, especially if you’ve got a long investment horizon ahead of you.

Bo: What does it take to build a $1 million nest egg? Using the rate of return from our wealth multiplier, which you can check out at moneyguy.com/resources, here’s what you need to save and invest to get there. If you’re 25 years old, you need to invest about $152 a month. Starting at 35, that number is $505 per month. And if you’re beginning your journey at age 45, you’ll need to set aside $1,495 a month to reach this goal.

Retiring with $1.5 Million (5:52)

Bo: Let’s look at what it looks like if you retire with a $1.5 million nest egg. A 4% withdrawal rate would give you $60,000 a year just from the portfolio. If we factor in Social Security and you began benefits at age 62, your total annual income would be about $76,900. If you wait until age 67, your annual income would be about $84,200. Or if you wait all the way until age 70, you’re actually looking at a $90,000 a year income.

Bo: Things are definitely a little more comfortable at this level. You’d likely be able to afford some nice vacations, help out with the grandkids here and there, and generally live without having to worry too much about every expense. This is where retirement really starts to feel less like just getting by and more like actually enjoying the fruits of your decades of hard work. You’ll have the flexibility to splurge on experiences that matter to you while still maintaining a solid financial foundation.

Bo: What kind of savings does it take to build a $1.5 million nest egg? If you’re starting at age 25, you need to invest about $227 per month. At 35, about $757 per month. And if you’re waiting until age 45 to start, you would need to save about $2,243 each month to reach this goal.

Retiring with $2 Million (7:14)

Bo: What happens if we move up to a $2 million nest egg? At a 4% withdrawal rate, your portfolio alone could generate about $80,000 per year before we even think about Social Security. At age 62, your total income could be about $96,900. At age 67, it could be a little over $104,000. And if you were to wait all the way until age 70, with that size portfolio, your annual income could potentially be over $110,000 a year.

Bo: With around $100,000 in annual income and ideally no mortgage payment hanging over your head, you’re entering into what many would consider a genuinely comfortable, perhaps even cushy retirement. At this level, you have the freedom to take nicer vacations each year, help children or grandchildren with their expenses, and even donate meaningfully to causes you care about. This affords you the ability to live life on your own terms with real financial peace of mind and flexibility, thanks to the decades of discipline and hard work you put in.

Bo: What does it take to accumulate $2 million? Starting at age 25, you need to save about $303 per month. At 35, a little over $1,000 a month. And if you wait until age 45, you would need to be saving about $2,990 each month.

Find Your Number (8:42)

Bo: These numbers are not all one-size-fits-all. If the lifestyle you’re looking for requires a bigger nest egg, you may need more than $2 million. Personal finance is personal. So let us know in the comments what number you’re shooting for. And if you want to know if you’re on track, check out this video to see money milestones that you should hit at every decade. And as always, keep building towards your great big beautiful tomorrow.