Financial blogs love telling you that you need $1 million to retire. That's a useless number. $1 million is plenty if you live in rural Alabama. It's nothing if you live in Manhattan. The right number depends on what you spend — not some generic rule of thumb.
The 4% Rule
The 4% rule is the closest thing investing has to a retirement standard. It says: you can withdraw 4% of your portfolio in the first year of retirement, then adjust for inflation each year, and your money has a high probability of lasting 30 years.
So your retirement number = your annual expenses ÷ 0.04.
If you spend $40,000/year, you need $1,000,000 ($40k ÷ 0.04). If you spend $60,000/year, you need $1,500,000. If you spend $30,000/year (paid-off house, no debt), you need $750,000.
The Reality Check
Most people don't save $1 million. The median retirement savings for Americans aged 65+ is about $200,000. That's not ideal, but it's reality. Social Security replaces roughly 40% of pre-retirement income for the average worker. Combined with even modest savings, many people get by.
I'm not saying you should aim for $200k. I'm saying the all-or-nothing thinking ("I'll never have $1 million so why bother") is wrong. Saving something is infinitely better than saving nothing.
Age-Based Benchmarks
Fidelity suggests having this much saved by each age (assuming you want to replace 70% of your pre-retirement income):
- Age 30: 1x your annual salary
- Age 40: 3x your annual salary
- Age 50: 6x your annual salary
- Age 60: 8x your annual salary
- Age 67: 10x your annual salary
If you're behind, don't panic. The main lever you can pull is savings rate. A 35-year-old saving 20% of their income will likely retire with more than a 45-year-old saving 10%. Start now, save aggressively, and let time do the work.
Social Security: What to Expect
Social Security is not going bankrupt. The trust fund may run low around 2034, which would mean benefits get cut to about 75-80% of current levels. But the program itself will continue. Current projections show full benefits through 2033 and reduced benefits after that.
Plan as if Social Security will cover 50% of what you expect. If it covers more, that's a bonus. If it covers less, you're prepared.
Enter your numbers into our Compound Interest Calculator to see how much you need to save each month to hit your retirement goal.