According to an Age Wave/Merrill Lynch report, 81% of Americans report not knowing how much money they'll need for retirement. That's more than a little problematic, because if you don't know how much you'll need, you can't know if you've been saving enough.

How much money needed for retirement will be different for different people, but here's a look at an average figure, and what it means for you.

A clock face with the words time to retire on it.

Image source: Getty Images.

The magic number is... $738,400

The same report, which noted, "retirement is the most expensive purchase most people make," found that the average cost of retirement is $738,400. Here it is compared with some other average costs:


Average Cost

A college education


Raising a child to age 18


A home




Source: Age Wave/Merrill Lynch "Finances in Retirement: New Challenges, New Solutions" report.

Again, remember that these are just averages, and that each item could cost more or less -- and probably will. If you use the rough 4% rule guide, you'll get about $30,000 in income from a $738,400 nest egg in your first year of retirement, and can adjust further withdrawals for inflation. Add that to what you expect from Social Security and any other income sources, and see if $738,400 makes sense for you. (The average annual Social Security benefit is nearly $17,000.)

A white haired woman peering with interest over her glasses.

Image source: Getty Images.

Alarming findings

The report cites some other troubling numbers related to retirement, such as:

  • While the mean percent of income that people think they should be saving for retirement is a whopping 25.3%, the percentage of income that they actually are socking away is a measly 5.5%.

  • Only 15% of pre-retirees have tried to estimate how much money they might need for healthcare and long-term care in retirement.

  • While life expectancy at birth in America has gone from the mid 60s in 1950 to nearly 80 years old today, the average retirement age has fallen during that period from around 70 to 63. 

The disparity in savings is very worrisome, because for most people, socking away only 5.5% of their income isn't going to help fund a very comfortable retirement. That is especially true if one doesn't start saving for retirement while still very young. Young savers enjoy the tailwinds of time, giving their money the opportunity to grow. Those who start saving later in life need to save a lot more.

Ignoring healthcare costs is another major blunder because healthcare is expensive. A 65-year-old couple retiring today will spend, on average, a total of $275,000 out of pocket on healthcare, according to Fidelity Investments. Medicare can be a great help in retirement, but it won't wipe out all out-of-pocket expenses.

Meanwhile, if people are living longer and retiring earlier, that means they're ending up with significantly longer retirements. With retirements typically starting around age 63 and life expectancy near 85 years old for those who have made it to 65 years old, a very common retirement duration is about 22 years. In 1950, retirement was commonly less than 10 years! A long retirement may sound ideal, but it also means you'll need to have enough income to last a long time.

Smooth stones with words written on them such as retire, 401k, IRA, Save, and Roth.

Image source: Getty Images.

What to do

So if you're among those who don't know how much money they need for retirement or who don't think they will have enough money, what should you do? Fortunately, you're probably not doomed. There are many ways to generate more income in retirement, such as delaying retiring for a few years, working in retirement, and perhaps getting a reverse mortgage.

It's also quite effective to save more aggressively, no matter how old you are now, and to invest that money effectively. Long-term money that you won't need for five years (or 10 years, to be more conservative) is likely to grow the most quickly in stocks. A low-fee index fund such as one based on the S&P 500 is an easy way to be instantly invested in the stock market. Here's how much you might accumulate over various periods:

Growing at 8% for

$5,000 invested annually

$10,000 invested annually

$15,000 invested annually

5 years




10 years




15 years




20 years




25 years



$1.2 million

30 years


$1.2 million

$1.8 million

Calculations by author.

The Age Wave/Merrill Lynch report offered several examples of "course corrections" people can make that will leave them with far more money in retirement. Some corrections include not spending thousands of dollars helping to support grown children each year, quitting the costly and damaging habit of smoking, and relocating to a region with a lower cost of living and less costly homes.

Take some time to figure out how much you'll need for retirement, and how you'll get there. Find out how much you can expect from Social Security (the recent monthly average benefit was $1,404), too. With a little research and brainstorming, you can probably identify a handful of course corrections that can put you on the path to a better future.