Most people would agree that $1 million is a lot of money. Many work their entire lives and never see a seven-figure sum in any of their bank or investment accounts. That could be part of the reason some people associate a $1 million nest egg with a luxurious retirement. But they could be in for an unpleasant surprise.

How far does $1 million go in retirement?

There are two main reasons $1 million probably won't last most people through their whole retirement anymore. The first is a rising life expectancy. A typical 65-year-old retiring in 1970 could only expect to live another 15.2 years. But by 2019, the average 65-year-old had 19.6 years of life remaining, on average. That means those retiring in 2019 had to save enough to cover about 4.4 years of additional expenses.

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Inflation is also taking its toll. The average household headed by an adult 65 or older spent about $52,141 in 2021, according to the Bureau of Labor Statistics. And it's a good bet this figure was even higher in 2022 with all the rising costs consumers faced. By contrast, a household headed by an adult 65 or older in the early 1970s only spent about $4,867 annually, so they could get by with saving a lot less.

Simple math shows that saving for retirement today is a much bigger challenge than it was 50 years ago. If a 65-year-old spending $52,141 in 2021 lived the average 19.6 years in retirement and they saw a 3% average annual rate of inflation, they'd burn through $1 million in a little over 15 years.

Now, to be fair, most people will receive some money from Social Security or maybe even a pension, so they may be able to retire comfortably even if they don't have $1 million in their retirement accounts. And there are always some people who spend less than the average or don't live as long. But a lot of people will need more than $1 million saved to cover all their bills, especially if they expect their retirement expenses to be above average.

If you want to be confident you're saving enough, you can't just aim for a round number. You need to build a plan that takes your life expectancy and spending habits into account.

How to figure out how much you need to save for retirement

Figuring out an accurate retirement savings target isn't so overwhelming if you break it down into simpler steps. First, think about when you'd like to retire. You can choose any age that works for you for now. If you find out your original plan isn't feasible, you can always repeat this process with a new retirement age.

Next, estimate your life expectancy. This depends on a lot of personal and family health factors, but it's best to be optimistic unless you have good reason to believe you won't live long. Plan to live into at least your mid- to upper-80s, and if you're in reasonably good health, you may want to plan for a life expectancy of 90 or higher.

With these two factors figured out, you can now estimate how many years of retirement expenses you'll need to cover. The next step is to figure out roughly how much you'll spend annually.

You can use your current expenses as a baseline, but you also need to think about how these will change once you retire. For example, when you're in retirement, you won't need to save for retirement anymore. And you probably won't be paying for child care or a child's college education either. But you might spend more on your hobbies, travel, and healthcare. Adjust your estimates in each category as appropriate.

Don't forget about inflation

You can't forget about inflation, which will make everything more expensive over time. Usually, a 3% annual inflation rate is a good bet for retirement planning. So if you estimate you'll spend $50,000 in your first year of retirement, you'll need to budget an additional 3% -- or $1,500 -- for your second year of retirement, and so on.

You can do this math yourself or you can use a retirement calculator to help you figure out how much you need. The latter can also help you estimate how much you'll earn on your investments so you know how much you need to save each month. It's usually best to be conservative when estimating your investment growth, just in case the economy falls on hard times. A 5% or 6% average annual rate of return is a safe bet, and it's possible your money could grow even faster.

Social Security isn't going anywhere

Once you've taken the above steps, you should have a reasonable idea of how much your retirement will cost, but that's not the same as how much you'll have to save. Remember, you'll get some money from Social Security (no, it's not going anywhere) and some people also get pensions or 401(k) matches to help them out. In order to figure out how much you need to save on your own, you need to subtract this from your estimated retirement expenses.

Create a my Social Security account to estimate how much you'll get from Social Security per month. Then, multiply this by the number of months you expect to claim to get your estimated lifetime benefit. Subtract this from your total retirement costs. Some retirement calculators may have a place for you to enter estimated Social Security benefits as well. For 401(k) matches, subtract these from your monthly savings target to figure out how much you must save per month to reach your goal.

Hopefully, the savings target you end up with is feasible, but if not, you may have to go back to the drawing board. Try tweaking a few of the factors above, like delaying retirement, until you find a plan that works for you. Then, set up monthly automatic contributions to your retirement account and stick as closely to your plan as possible.