The Average American's Retirement Number Is $1.26M. Mine's Double That
Image source: Getty Images
KEY POINTS
- Americans think they need $1.26 million on average to retire, a new survey shows.
- But that might not be enough. My personal goal is more like $2.5 million.
- Learn how to calculate your own "magic number" with a simple three-step method.
The latest Northwestern Mutual Planning & Progress study found that the average American now believes they'll need $1.26 million to retire comfortably. That's down a fair bit from last year's reported "magic number" of $1.46 million.
But here's the thing: averages can be really misleading. When my wife and I ran our own numbers, we landed on a totally different goal. We'll need a nest egg in the $2.5 million range to be comfortable in retirement.
Here's how to calculate your retirement number -- and a few next steps if you're just starting out saving.
How to work out your "magic number"
I asked Motley Fool retirement expert Robert Brokamp how the average person can do the math at home. He gave me this ultra-simple three-step formula:
"Retirement needs, resources, and ages are so different for each person, no one number suits everyone.
A better back-of-the-envelope method would entail:
- Estimate how much income you'll need in retirement (adjusted for inflation).
- Subtract the amount you'll receive from Social Security and other non-portfolio sources (e.g., a pension).
- Multiply the result by 25, which gives you the size of the portfolio you need to provide that amount of income."
That last part -- multiplying by 25 -- is based on the classic 4% rule of retirement. And while it's not perfect, it gives you a realistic ballpark number to shoot for.
Need a little help running your numbers? Even with a simple formula, it can be tricky to know if you're really on track -- especially once you start factoring in Social Security, taxes, healthcare, and big goals like travel.
Looking for a real, detailed plan? You can get matched with up to three fiduciary advisors with our partner, SmartAsset, so you can get professional advice.
Example: My $2.5 million retirement goal
My wife and I estimate we'll need around $100,000 per year in retirement income. That'll cover our housing, travel, food, and a new surfboard every few years (yes, I plan to keep surfing into my 80s).
We don't have any pensions, and to keep things simple I'm not factoring in any Social Security income (truth be told, my wife and I plan to retire before the age those benefits kick in)
Multiplying our retirement income by 25 brings us to our retirement goal.
$100,000 x 25 = $2.5 million
We might not hit that exact number. But just having a clear, personalized target feels way better than winging it and hoping we have enough.
More examples based on the 4% rule:
Here's a quick and easy chart with more scenarios.
| Target Income | Retirement Goal |
|---|---|
| $40,000 | $1,000,000 |
| $60,000 | $1,500,000 |
| $75,000 | $1,875,000 |
| $100,000 | $2,500,000 |
| $120,000 | $3,000,000 |
Remember, if you have a guaranteed pension, or you'll receive Social Security benefits, you can subtract that amount from your future income needs. You can get a Social Security benefit estimate pretty quickly anytime at SSA.gov!
How to start saving for retirement
It's very intimidating to have a multimillion-dollar retirement goal. But everyone starts somewhere -- and the most important step is just starting.
Here's the lowest hanging fruit to save faster.
- Start with your 401(k), if you have one: Especially if your employer offers a match, try and sock away 10% to 15% of your salary.
- Open an IRA: A Roth IRA or traditional IRA is a great place to begin if you don't have access to a 401(k). You can start investing with just a few bucks.
- Automate your savings: Set up monthly recurring transfers so saving happens behind the scenes. Out of sight, out of mind.
- Increase contributions over time: Got a raise? Bump up your savings rate by 1%. Small moves compound in a big way.
- Invest wisely: Growing wealth doesn't happen overnight. Target date funds and index funds are a great place to start, because of their low fees and broad diversification.
And if you want a real plan -- not just a guess -- it can help to get expert guidance. This no-cost quiz from our partner, SmartAsset, makes it easier to find a fiduciary financial advisor.
Don't just guess -- run your numbers
The average retirement number might be $1.26 million. But your life is not average. You'll feel way better and more in control when you have a personalized goal and plan for retirement.
It's not about being perfect -- it's about being proactive. And if you're not sure where to start, it helps to work with a pro.
Our Research Expert
Joel is a full-time writer at Motley Fool Money, known for his clear, approachable voice on topics like credit cards, savings hacks, and side hustles. He’s been writing about money since 2018 and previously managed editorial content for the How To Money podcast.
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. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.