This Is How Much Most Americans Think They Need to Retire

I won't keep you in suspense; the average American believes they'll need $1.27 million to retire comfortably. However, this varies considerably by age, and no age group has nearly enough savings (on average) to be on track to achieve their target amount.

One interesting note is that the age groups that are currently at or near retirement age are the ones that believe they need the least amount of money to retire comfortably. This is likely because many respondents are already well into their retirement, so their future financial needs are naturally lower than someone who hasn't started their retirement yet.

Is $1.27 million enough for a comfortable retirement?

Let's take a closer look at the $1.27 million the average American believes they'll need to enjoy a comfortable retirement and whether it's truly enough.

The short answer is "it depends."

The longer answer is that a comfortable retirement isn't necessarily about how much money you have in savings, but about how much income that money can create relative to the kind of lifestyle you want.

How much income do you need in retirement?

A popular rule of thumb is that the average American needs about 80% of their pre-retirement income in order to maintain the same quality of life they're used to. For example, if you earn $100,000 now, a retirement income of $80,000 per year should allow you to sustain your lifestyle. The reasoning is that you won't have some of the expenses you have now (like commuting to work or buying things for your children), and you won't need to put any of your income into retirement accounts like you're (hopefully) doing now.

Of course, this is just a guideline. If you plan to travel extensively or pursue expensive hobbies in retirement, you might need more. On the other hand, if you're a super-saver or plan to live a downsized life in retirement, less than 80% could be fine.

Consider your other income sources

The next step is figuring out where your income is going to come from after you leave the workforce. It doesn't all need to come from your retirement savings. At the very least, you'll have Social Security income, and you can get an estimate of your future Social Security benefits by viewing your latest statement at SSA.gov and creating an account if you haven't yet. Also consider any pensions, annuities, or other expected income streams you'll have.

Let's stick with our simplified example of someone who earns $100,000 from their job and expects to need $80,000 in retirement income. If this individual expects $30,000 in annual Social Security income and doesn't have any other sources, they'll need to draw $50,000 from their retirement savings.

The 4% rule

Admittedly, the 4% rule isn't perfect, but a good guideline is that it's a safe withdrawal rate to take 4% of your retirement savings in your first year and increase it with inflation in subsequent years, without too much worry about running out of money.

So, if you take the average person's $1.27 million figure for a comfortable retirement and multiply it by 4%, we get a sustainable withdrawal rate of $50,800 per year.

So, how much is enough for you?

Combined with Social Security and other sources, a $1.27 million retirement nest egg could certainly be enough for many Americans to retire comfortably, but it isn't likely to be enough for everyone. Using the steps outlined here, you can assess your own retirement income needs and decide whether you might need to increase your savings rate.