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Do You Really Need $1 Million to Retire? Maybe Not!

By Justin Pritchard September 27, 2022 Managing Money

Women in their 60s are increasingly questioning if it makes sense to continue working. For a variety of reasons, including an increased focus on what’s most important in life, work is sliding down the list of priorities.

With the help from stock and bond market returns since the Great Recession, it’s not uncommon for people in their 60s to find out that they’re doing surprisingly well financially. And after running some numbers, you might also find that you’re more prepared than ever for retirement.

That said, not everybody is fortunate enough to call it quits, and that’s a reality that we all need to acknowledge.

Unfortunately, a lot of big numbers get thrown around, and that’s not always helpful. For example, you may find that common rules of thumb – like needing $1 million or more – don’t apply to you. In fact, according to the Federal Reserve, the average retirement savings for households between age 65 and 74 was roughly $426,000 in 2019. And the median (or the middle, when you line up the answers from smallest to biggest) was $164,000. 

So, how can you get a more realistic view of things?

Understand Where You Stand

The first step is to have a basic understanding of your current financial position. Take an inventory of your assets and other resources that can provide the income you need to pay for the things you want. 

For example, you might have income sources (whether you’ve started taking income) such as Social Security or a pension. What’s more, you may have savings and investments earmarked for retirement. If so, you can withdraw from those funds to supplement your retirement income. Take the time to learn about your benefits and your various accounts, and revisit the topic periodically if you’re still not retired.

Next, get familiar with your spending. There are two ways to approach this, and each option has pros and cons.

  1. Figure out how much money leaves your accounts every year or every month.
  2. Create a detailed list of all expenditures.

The first option is a high-level view of your spending, and it’s most likely to capture all of your expenses. That’s a good thing. However, the second method provides more detail, which allows you to evaluate your expenses and identify costs that might change over time. For example, if you have a mortgage payment, you’ll likely pay off the loan balance at some point, and your monthly obligations change after that.

The best approach depends on your desire to dig into the details and your ability to get reliable information about your spending. It’s okay to start with a high-level view and move on to a detailed budget if your finances are looking constrained.

Plan Your Income and Spending

With an understanding of your resources and your monthly needs, you can make a retirement spending plan. Guaranteed income sources like Social Security and pensions can provide a “base,” and if you need more than that, you may need to spend from your retirement savings.

The average Social Security retirement benefit is just over $18,000 per year. But if you’re fortunate enough to have high earnings in your lifetime, you may get even more than that. 

What about spending? According to the U.S. Bureau of Labor Statistics, the average household run by somebody over age 65 spends just over $50,000 per year. 

Of course, your numbers may vary greatly depending on where you live, your health, and other factors. Many people live comfortably on less than that, while others need significantly more.

An Example

If we assume you’re single – with one Social Security benefit in your household – what does this mean? You might need $32,000 per year to close the gap between $18,000 of Social Security income and $50,000 of spending, ignoring taxes for simplicity. If your household has two sources of income, you’re in even better shape.

Where might that $32,000 come from? For most people, the funds come from retirement savings. In particular, you may need to spend down your savings – ideally at a rate that allows the money to last for the rest of your life. 

There’s no way to predict exactly how long your money will last. Ultimately, it depends on how much you earn on your assets, inflation, spending patterns, health events, and your luck. However, with some planning, you may be able to estimate how much you can reasonably spend each year.

The Controversial 4% Rule

One way to estimate how much you can spend in retirement is the 4% rule. But it’s important to know that this is anything but a “rule,” and most people don’t follow the approach exactly as it’s laid out. Still, the 4% rule is a way to get a ballpark idea of your retirement readiness.

The 4% rule says you can spend 4% of your retirement savings as measured on your retirement date. To use simple numbers, assume you have $500,000 earmarked for retirement. 4% of $500,000 is $20,000, so that’s how much you might spend from your savings each year.

Why is the number so low? You’ll adjust your spending for inflation, so the amount you take out should increase each year as prices rise. The original research behind the 4% rule suggested that this withdrawal rate should enable you to spend from your savings for 30 years – if certain assumptions hold true. Of course, nothing is guaranteed, so this strategy is merely an estimate of how things might unfold.

In fact, there may be several problems with the 4% rule. Some argue that you need to withdraw less than that, given low interest rates and high stock prices. Others say you could potentially spend more. And the standard 4% rule ignores taxes and other realities that are essential for a robust retirement income plan. Again, this is an oversimplification, and Margaret Manning discusses some of these topics in this interview.

Back to the numbers. If you have Social Security income of $18,000 per year and you can withdraw $20,000 from your savings annually, you’ve got $38,000 to work with. Assuming the average annual need of $50,000, we’re still $12,000 short (although I’ve certainly worked with people who can live on $38,000). That $1,000 per month will present a challenge, but there may be ways to generate some extra money or reduce spending, assuming you’re able to do so.

What If I Don’t Have Enough Money?

Many people are facing a retirement shortfall. While that can be stressful, remember that people retire with little or nothing every day. They aren’t as comfortable as millionaires, but they can still lead satisfied and meaningful lives. In these cases, it’s important to acknowledge the anxiety you’re experiencing – and, if possible, take steps to control what you can control.

You might have other resources that aren’t traditional retirement assets. For example, equity in your home could help pay for things, if necessary. While getting access to that money can be a challenge, there are several options, including downsizing (it might make sense anyway) and reverse mortgages.

Build in a Safety Net

Without a doubt, the more money you have, the better your chances of success. Money doesn’t buy happiness, but it buys flexibility, choices, and a safety net.

While you might not need $1 million to retire, it’s wise to have a cushion in place no matter what your lifestyle looks like. Surprises can happen, and healthcare expenses are just one example of costs that can impact anybody’s retirement plan. Consider the tradeoffs of spending and saving, and make a plan that can adjust course occasionally.

Let’s Have a Conversation:

What do you think? Have you seen people retire comfortably on a modest income? What tips do you have for anybody retiring on less than $1 million?

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The Author

Justin Pritchard, CFP®, is a fee-only financial advisor who helps clients get clarity on retirement. He has been quoted in The New York Times, Consumer Reports, The Wall Street Journal, and more. Improve your retirement readiness with Justin’s resources for retirement success, available at no charge from

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