Humans often seek easy answers and shortcuts. This is not always a flaw, but a form of efficiency. So, it’s no surprise that we want a ‘magic’ answer to one of the biggest financial decisions we need to make: how much to save for retirement.
As a result, we often have a ‘magic number’ in mind for our retirement savings.
This year, that ‘magic number’ Americans believe they’ll need to retire comfortably is $1.26 million, according to Northwest Mutual’s 2025 Planning & Progress Study.
This is $200,000 less than the estimated $1.46 million they believed they’d need when they were surveyed last year. This number is also more in line with the 2022 and 2023 estimates, indicating a reversal in thinking from last year to the years before.
Don’t miss
- I’m 49 years old and have nothing saved for retirement — what should I do? Don’t panic. Here are 5 of the easiest ways you can catch up (and fast)
- Gain potential quarterly income through this $1B private real estate fund — even if you’re not a millionaire. Here’s how to get started with as little as $10
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don’t have to deal with tenants or fix freezers. Here’s how
Why the ‘magic number’ might be lower this year
It’s likely that the decline in the ‘magic number’ from last year is at least partially related to declines in inflation, which has been falling — albeit unevenly — since peaking in the summer of 2022.
As inflation has fallen, so too have expectations of future inflation, which were lower in 2024 than in the previous couple of years. This suggests that for that year, future retirees may not believe high inflation would eat away at their retirement savings, compared to years prior.
It may also be that views on retirement are changing. Whether by necessity or intention, about half of workers plan not to retire before the ‘traditional’ age of 65 and 39% expect to retire only at 70 or older, or not to retire at all, according to a report by the Transamerica Center for Retirement Studies. This could mean a shorter retirement and additional income during this period, reducing the size of an individual’s needed nest egg.
Is the ‘magic number’ a reasonable goal?
Before you start worrying about achieving that ‘magic number,’ it’s worthwhile to determine if it’s a reasonable goal. In 2023, the average expenditure for a household where the ‘head’ of the household is 65 years or older was $60,087, according to the U.S. Bureau of Labor Statistics.
Assuming most retirees will collect Social Security benefits — averaging about $1,997 in March 2025 (just under $24,000 a year), and further assuming only one member of the household will collect benefits, a household would need an additional sum of about $36,000 a year to cover expenses.
A common rule of thumb is to withdraw 4% of your nest egg in the first year of retirement and then to continue withdrawing that amount (adjusted for inflation) each year afterward. This would allow your nest egg to provide income for the duration of most retirements. If you need $36,000 per year, then you’d need an initial nest egg of about $900,000 — making $1.26 million more than many need.
But research by the Employee Benefits Research Institute shows that retirees are cutting back on expenditures because of insufficient income, so using actual expenditures may give a more accurate picture of the amount retirees will need to live comfortably.
Read more: Car insurance premiums could spike 8% by the end of 2025 — thanks to tariffs on car imports and auto parts from Canada and Mexico. But here’s how 2 minutes can save you hundreds of dollars right now
Another retirement rule of thumb is to estimate that you’ll need 70% to 80% of your pre-retirement income to retire comfortably. Real median household income in the U.S. was $80,610 in 2023, according to the U.S. Census Bureau.
A range of 70% to 80% would be about $56,000 to $65,000, which — when applying $24,000 from Social Security — implies a required nest egg of $800,000 to $1.025 million, which is still below the ‘magic number’ of $1.26 million.
Retirement is personal
While the ‘magic number’ may be higher than many people need, calculations that use averages, medians and rules of thumb don’t help you determine what your exact number should be — and your own situation is likely to be quite unique.
After all, retirement is a very personal thing. If you want to estimate what your own ‘magic number’ might be, it’s worth speaking to a financial advisor.
Many advisors have access to modeling programs that factor in your personal circumstances and plans for retirement to come up with a number that works for you. Once they know this number, they can set up a suitable savings and investment program so you can reach this goal. A helpful feature is that these models can be used to run scenarios — such as accounting for higher inflation — to see how this might affect your plans.
There are several factors that go into figuring out your number. Where you plan to retire can make a big difference, as can what you plan to do in retirement.
Some states are much more expensive than others for retirees, while others continue to be popular. And if you plan to travel a lot, this is likely to cost you more than if you plan to stay close to home and spend time with your children and grandchildren.
Healthcare can be a big expense that grows through retirement. It’s impossible to predict what health challenges you may encounter, but if you already have chronic conditions that may get worse with time, it’s important to consider how this might lead to extra expenses in retirement and require a larger nest egg.
Non-investment sources of income will also play a role. Most retirees are at least somewhat reliant on Social Security and some may have a pension — or even plan to work part-time in their semi-retirement years.
You may want to have a ‘magic number’ — but you should arrive at it through analysis of your own unique situation. And you should be prepared to change that number if your retirement goals or circumstances change as you age.
What to read next
- Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
- Here are 5 ‘must have’ items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you?
- There’s a 60% chance of a recession hitting the American economy this year — protect your retirement savings with these essential money moves ASAP (most of which you can complete in just minutes)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
