How Much Money Is Enough to Retire?

How much money do you need to retire? Learn why an arbitrary retirement savings target may keep you working longer than necessary—and how to determine what “enough” actually means for your retirement.

Over my 23 years as a financial advisor, I’ve heard many people attach their retirement date to a specific dollar amount.

“I’ll retire when I get to $2 million.”

For someone else, the number might be $500,000, $1 million, or $10 million. The amount varies, but the thinking is often the same: Once my investment accounts reach that number, I’ll finally feel comfortable enough to retire.

There’s nothing wrong with having a retirement savings goal. The problem comes when that goal isn’t based on what your retirement will actually require.

I’ve seen people accumulate more than enough money to support the retirement they want and continue working because they haven’t reached an arbitrary number. I’ve also seen something else happen: They reach the number they thought would make them comfortable, only to decide they need even more.

That’s why “How much do I need to retire?” is the wrong question if you’re only looking for an account balance.

The better question is: What does my money actually need to do for me in retirement?

When $1 Million Wasn’t Enough

About 10 years ago, I worked with a client who was convinced they needed $1 million before they could retire.

I took them through the retirement planning process and ran the calculations. Based on their goals, Social Security income, and the income available from their investments, my conclusion was that they didn’t need to wait for $1 million. They already had enough resources to retire.

They disagreed.

They were adamant that retirement wasn’t happening until the account reached $1 million. I couldn’t convince them otherwise, so I started keeping an eye on the balance.

Eventually, they reached exactly $1 million. I called with the news: You made it. You can finally retire.

Their answer was essentially, “Now I need $2 million.”

The financial finish line had moved.

They eventually did retire, but it wasn’t because they reached $2 million or because another retirement projection finally persuaded them. They retired after having a heart attack.

Fortunately, they survived, and their health wasn’t significantly affected. But their experience illustrates why I think it’s so important to define “enough” based on what your retirement actually requires rather than waiting for a number to make you feel ready.

Your Retirement Number Should Come From Your Retirement

There’s an interesting postscript to that client’s story.

About 10 years after they originally told me they needed $1 million, they have more than $1.5 million and are withdrawing only about $2,000 per month from their investments.

Using the rough 4% to 5% withdrawal range I referenced when looking back at their situation, a portfolio of approximately $500,000 to $600,000 would support that level of withdrawals.

Think about the difference between those numbers.

Before retirement, they believed $1 million wasn’t enough. Once they reached $1 million, they decided they needed $2 million. Yet their actual retirement lifestyle has required considerably less from their portfolio.

That doesn’t mean $500,000 or $600,000 is the right retirement number for you. It doesn’t mean $1 million is too much, either. The point is that none of those numbers means much until you connect it to the retirement you’re trying to fund.

Your retirement plan needs to account for the income you expect from Social Security and your investments, along with the goals and spending those resources need to support. Only then can an investment balance begin to tell you whether you have enough.

Be Careful of a Moving Finish Line

There is a psychological component to this that shouldn’t be ignored.

I referenced research showing that when people are asked how much they need to feel rich, the answer is often about 25% more than they currently have. Once they accumulate more, the target moves again.

I see a similar tendency around retirement.

If you’ve spent decades saving and watching your accounts grow, accumulating more feels productive. Another year of work means another year of earnings, another year of contributions, and potentially another year of investment growth before you begin taking withdrawals.

The tradeoff is that another year of work is also another year you’re not retired.

That may be a perfectly reasonable trade if you enjoy your work or if your retirement calculations show that you need the additional resources. But it’s a very different decision if you’re staying in a job you don’t enjoy simply because you’ve attached retirement to a number that keeps moving.

There will almost always be a financial argument for having more money. That doesn’t mean more money will materially improve the retirement you’re actually going to live.

Put Your Retirement Number Through the Math

If you already have a retirement number in your head, I don’t think you need to throw it away. I think you need to test it.

Start with the amount you believe you need. Then run that number through an actual retirement calculation and determine what your resources need to provide.

Your analysis should help answer questions such as:

• How much income will your retirement lifestyle require?
• How much of that income will come from Social Security?
• How much will need to come from your investments?
• Does the amount you’ve accumulated support the retirement goals you’ve identified?

The answer could tell you that your original target isn’t enough. If that’s what the math shows, that’s valuable information to have before you retire.

But the calculation could also show that you’ve been waiting for $2 million when your retirement plan doesn’t require $2 million.

That’s valuable information, too.

Knowing You Have Enough Is Part of the Retirement Plan

For people who have been disciplined savers for 30 or 40 years, reaching retirement can create an unusual problem. You’ve spent your career measuring financial progress by how much you’ve accumulated. It’s natural to assume that a larger balance means you’re better prepared.

But retirement changes the purpose of the money.

The objective is no longer simply to make the account as large as possible. The money you’ve accumulated now has to support the life you’ve been preparing to live.

That’s why I don’t believe “How much is enough?” can be answered with a universal retirement number. Your number should be connected to your income, your goals, your spending, and the retirement you’re trying to create.

And once you’ve done that work, you may discover that the most important retirement calculation isn’t determining how much more you need to accumulate.

It’s recognizing when you already have enough.

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About the Author:

Jeremy Keil, CFP^®, CFA is a retirement financial advisor with Keil Financial Partners, author of Retire Today: Create Your Retirement Income Plan in 5 Simple Steps, and host of the Retirement Today blog and podcast, as well as the Mr. Retirement YouTube channel.

Jeremy is a contributor to Kiplinger and is frequently cited in publications like the Wall Street Journal and New York Times.

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Additional Links:

• Buy Jeremy’s book – Retire Today: Create Your Retirement Master Plan in 5 Simple Steps
• How much money do you think you need to have saved in order to retire? Email me with your answer: podcast@keilfp.com 
• “I’m 62 with $2M in Retirement: How do I get more income and pay less taxes?” – Mr. Retirement YouTube Channel
• “Can I Retire on $1 Million?” – Mr. Retirement YouTube Channel
• “Top 2 Strategies to MAXIMIZE your $250,000 Retirement Savings!”  – Mr. Retirement YouTube Channel
• “62 with $500K in Retirement: How Long Will My Money Last?”  – Mr. Retirement YouTube Channel

Connect With Jeremy Keil:

• Keil Financial Partners
• LinkedIn: Jeremy Keil
• Facebook: Jeremy Keil
• LinkedIn: Keil Financial Partners
• YouTube: Mr. Retirement
• Book an Intro Call with Jeremy’s Team

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