WiserAdvisor – Blog

Main Menu

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
logo
I Want to Take Charge.
HELP ME FIND AND COMPARE TOP VETTED FINANCIAL ADVISORS IN MY AREA.

FINRA/SEC Registered Advisors

  Your Information is Safe and Secure

WiserAdvisor – Blog

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
Retirement Planning
Home › Retirement Planning › You May Now Need $1.8 Million To Retire

You May Now Need $1.8 Million To Retire

By WiserAdvisor Insights
September 3, 2024
3367
0
10 Min Read
You May Now Need $1.8 Million To Retire

Retirement estimates often change. Every day, fresh studies emerge, attempting to pin down the ideal sum you need to save for your golden years. These studies consider factors like inflation, how long you might live, healthcare expenses, and much more. The most recent estimation suggests that $1.8 million for retirement in America is the magic number for a comfortable life. However, before you start worrying about not having enough savings, it is crucial to understand that this figure is not carved in stone. It may or may not suffice for your goals.

You may consult with a financial advisor who can help you decipher whether this hefty sum is indeed what you need to retire. This article will discuss the significance of this $1.8 million benchmark and shed light on how much you need for retirement.

Table of Contents

  • What makes $1.8 million the magic number for retirement in America?
  • How can you achieve $1.8 million for your retirement?
  • Do you really need to save 1.8 million for retirement?
  • Strategies to determine how much you may need for retirement based on your specific financial situation
    • Here are some retirement saving rules that you can consider to determine a suitable retirement savings target:
    • 1. Strategy 1: Save at least 30 times your annual expenses
    • 2. Strategy 2: 80% of your final pre-retirement annual earnings
    • 3. Strategy 3: The 4% rule
  • Determining your savings goals based on your ideal retirement income
    • 1. If you’re aiming for an income of $80,000 a year
    • 2. If you’re aiming for an income of $100,000 a year
    • 3. If you’re aiming for an income of $200,000 a year
  • To conclude

What makes $1.8 million the magic number for retirement in America?

The figure of $1.8 million is based on survey findings, where participants expressed the belief that they will require substantial savings of $1.8 million to enjoy a comfortable retirement. This might seem daunting at first; however, it is crucial to approach this information with a discerning eye before you start saving to meet this target.

How can you achieve $1.8 million for your retirement?

Planning and discipline are two of the most important things needed for a secure and comfortable retirement. The Social Security Administration has set 67 as the new official retirement age. If you consider using this age as your retirement benchmark, you can work backward to determine how you can reach a target of $1.8 million by 67.

Two of the most commonly used retirement accounts that retirees use to save for retirement are the 401(k) and Individual Retirement Account (IRA). The first step you can take towards ensuring you have enough saved for retirement is to maximize the Internal Revenue Service (IRS) contribution limits for both these accounts. The second thing you may consider doing is investing your funds in an S&P 500 index fund wisely. This strategy has historically yielded an average annual return of 9.82%.

To facilitate a clearer understanding of how you can use these strategies to reach your retirement goals, let’s break the targets down by age:

  1. If you start early, say at 25, you would only need to invest $242 per month to accumulate approximately $1.8 million by the time you are 67. That is less than what you might spend on your monthly groceries but can make a significant difference in your future.
  2. Let’s assume you decide to kick-start your retirement savings journey at age 35. In this case, the monthly investment will go up to $646. This can seem a bit more, but it is still achievable.
  3. By age 45, the monthly contribution should rise to $1,940. This might sound like a lot, but it is important to plan ahead at this point and make sure your future self is well taken care of.
  4. Now, if you happen to start a bit later, say at the age of 55, the monthly contribution will shoot up to $6,600. This might seem like a hefty sum, but it would be needed if you wish to save up as much money as possible. However, it is important to be mindful of the IRS contribution limits. In 2023, the IRS caps the limit at $37,500 after including catch-up contributions. This implies that even if you want to contribute more, you would not be able to contribute more than the permitted limits.

The importance of starting your retirement savings early cannot be stressed enough. Starting early, coupled with the power of compounding interest, can work wonders over the long term. It gives your money more time to grow and settle market blows. The longer the horizon, the more time you have to turn potential losses into profits. It also removes the burden of investing a high sum at once later in your life. Small, consistent savings and the magic of compound interest can help you build a nest egg as large as $1.8 million. Additionally, it is essential to note that it is not only about how much you make, but how much you are able to save and invest consistently.

Do you really need to save 1.8 million for retirement?

Based on the survey results given above, you may be led to believe that a specific amount of money is universally necessary for a secure retirement. However, your financial needs are unique and may not be like the next person’s. The amount you need for retirement is not a one-size-fits-all calculation, as no magic number ensures a worry-free retirement for everyone. Hence, it can be unwise to base your retirement plans solely on a generic benchmark, which may change in the future.

Hence, if you are wondering how long $1.8 million will last in retirement, it is important to account for factors such as your lifestyle before making a decision. What you spend on housing, healthcare, travel, hobbies, children, grandchildren, etc., can significantly influence your retirement budget. Therefore, relying solely on a generalized number, such as $1.8 million, may not be the most accurate way to plan for your retirement. You can take it as a starting point and use it as a reference. However, it is advised that you don’t take it as an absolute target to aim for. Your financial journey is personal, and your retirement needs should be tailored accordingly.

You may also consider seeking personalized guidance from a financial advisor who can help determine a suitable retirement target for you, based on your specific financial situation. Financial advisors are professionals well-versed in the complexities of retirement planning. These professionals can help you craft a retirement strategy explicitly tailored to your needs through a detailed discussion about your goals, aspirations, and current financial situation. Consulting with a financial expert can help you gain a deeper understanding of your financial landscape. You can reach out to them for help to get customized insights on your unique circumstances, so they can make the most of what you have and develop a realistic plan for your retirement years.

ad_article

Need a financial advisor? Compare vetted advisors matched to your specific requirements.

Choosing the right financial advisor is daunting, especially when there are thousands of financial advisors near you. We make it easy by matching you to vetted advisors that meet your unique needs. Matched advisors are all registered with FINRA/SEC. Click to compare vetted advisors now.

Strategies to determine how much you may need for retirement based on your specific financial situation

If $1.8 million for retirement does not seem like an ideal retirement goal for your needs, you will likely wonder what the correct amount is for a comfortable retirement. The answer can vary based on different strategies. Planning ahead and understanding these strategies can empower you to make informed financial decisions.

Here are some retirement saving rules that you can consider to determine a suitable retirement savings target:

1. Strategy 1: Save at least 30 times your annual expenses

One widely recommended approach is to save at least 30 times your annual expenses of today. This rule of thumb provides a rough estimate of how much you might need to maintain your current lifestyle in retirement. Here is how this works:

If your current annual expenses are $40,000. To calculate the amount you need to save using this method, you need to multiply your expenses by 30:

$40,000 * 30 = $1,200,000

According to this strategy, you would need to accumulate $1,200,000 to sustain your lifestyle in retirement, assuming your expenses remain the same after your retirement.

2. Strategy 2: 80% of your final pre-retirement annual earnings

Another approach is to aim for about 80% of your last pre-retirement annual earnings. This method considers your income level before retirement and calculates a percentage of it to ensure a comfortable retirement lifestyle. For couples, the same rule applies to their combined earnings. Let’s consider an example to understand this better.

Suppose you and your partner have a combined annual income of $100,000. To calculate the retirement fund needed, you need to follow these steps:

Multiply your combined income by 80%: $100,000 * times 0.80 = $80,000

This means you should aim for an annual retirement income of $80,000 to maintain your pre-retirement lifestyle.

3. Strategy 3: The 4% rule

The 4% rule is a straightforward method to determine how much you need to save to generate the income required in retirement. According to the rule, you can safely withdraw 4% of your retirement savings annually without depleting your nest egg prematurely. Let’s consider an example to understand this method better.

Suppose you want an annual retirement income of $50,000. To find out how much you need to save, divide your desired income by 4%:

Retirement savings needed = Desired annual income / 0.04

Retirement savings needed = $50,0000/ 0.04 = $1,250,000

Based on the 4% rule, you would need to accumulate $1,250,000 in your retirement fund. By following this guideline, you can be assured that your savings will last and suffice throughout your retirement.

While these strategies can help you arrive at an estimated figure for your retirement nest egg, determining how much you need for retirement involves more consideration. You need to consider your current expenses, in addition to your pre-retirement income, and then apply these strategies. These methods can provide helpful guidelines, but it is essential to factor in your individual circumstances, such as healthcare needs, debt situation, life expectancy, lifestyle choices, and inflation rates, which can impact your retirement fund requirements.

Determining your savings goals based on your ideal retirement income

1. If you’re aiming for an income of $80,000 a year

If you are thinking of a more modest retirement with an annual income of $80,000, you would need a retirement savings fund of about $2 million to support your lifestyle comfortably. $2 million worth of savings and investments can last you a lifetime if you withdraw 4% annually to cover your expenses. However, you need to keep in mind to align your financial needs with your retirement income goals and make prudent withdrawals.

2. If you’re aiming for an income of $100,000 a year

If you are aiming for a comfortable retirement with an annual income of $100,000, you would need to save $2.5 million to sustain a $100,000 annual income during your retirement years with the 4% rule. While this may seem like a substantial sum, it is essential to note that achieving this goal can be possible if you start saving early and maintain a stable income throughout your career.

3. If you’re aiming for an income of $200,000 a year

Now, let’s say you are expecting a more luxurious retirement with an annual income goal of $200,000. To maintain this lifestyle, you will need a substantial retirement fund. Experts suggest you should aim to save around $5 million. It might sound like a staggering amount, but it is achievable with suitable investments. With $5 million invested wisely, you can withdraw 4% annually, i.e., $200,000, without exhausting your savings too soon.

When saving for your retirement, it can help you to understand your retirement goals and work backward to determine how much you need to retire comfortably. You will need a more substantial savings cushion if you want a higher income. Your required savings will be less if you are comfortable with a more modest lifestyle. It is also important to remember that these numbers are not set in stone, and can vary based on factors like your expenses, lifestyle choices, inflation, and unexpected costs like healthcare, debt, or house repairs. Consulting with a financial advisor who can help you tailor a retirement savings plan that suits your specific needs and circumstances is always a good idea.

To conclude

While $1.8 million has been suggested as a benchmark for retirement savings, it is essential to understand that this figure is flexible. Your retirement needs are unique and influenced by several factors. At the end of the day, your retirement plan should be personalized and align with your specific goals and financial situation. So, take the time to assess your needs, plan thoughtfully, and start building your nest egg as early as possible.

Reaching out to a financial advisor can also be valuable in creating a retirement strategy that fits your needs. Consider using the free advisor match service to get connected with a suitable advisor. By answering a few simple questions based on your financial goals, you can be matched with 1 to 3 advisors who can help provide you with customized retirement savings strategies.

Previous Article

How An Analysis Of Your Financial Past ...

Next Article

9 Crucial Questions Every Investor Needs to ...

0
Shares
  • 0
  • +
  • 0
  • 0
WA-icon

WiserAdvisor Insights

A team of dedicated writers, editors and finance specialists sharing their insights, expertise and industry knowledge to help individuals live their best financial life and reach their personal financial goals. We believe that there is no place for fear in anyone's financial future and that each individual should have easy access to credible financial advice.

Related articles More from author

  • High Net Worth Individual
    Retirement Planning

    A Retirement Planning Guide for High-Net-Worth Individuals

    July 14, 2021
    By Jonathan Dash
  • How to Save for Retirement Even When It's Getting Harder
    Retirement Planning

    How to Save for Retirement Even When It’s Getting Harder

    December 13, 2023
    By Jonathan Dash
  • Inflation
    Retirement Planning

    Here’s Why Retirees Must Protect Themselves from Inflation

    December 11, 2019
    By WiserAdvisor Insights
  • Retirement-Plans
    Retirement Planning

    Simple Habits That Can Bolster Your Retirement Plans

    February 26, 2020
    By WiserAdvisor Insights
  • Pension-plans-fancy-projection
    Retirement Planning

    Pension Plans: Fancy Projections, Dangerous Outcomes

    December 30, 2019
    By WiserAdvisor Insights
  • Retirement Planning Tips: How Much an Average Person 65 and Older Spends Every Month
    Retirement Planning

    Retirement Planning Tips: How Much an Average Person 65 and Older Spends Every Month

    January 17, 2024
    By WiserAdvisor Insights

Leave a reply Cancel reply

You might be interested

  • Education-Planning
    Education Planning

    Why Your Education Planning Needs to Be around Your Child’s Ambitions

  • Social-Security-Benefits
    Retirement Planning

    Are Social Security Benefits Affected by Marriage?

  • Roth-IRA
    Retirement Planning

    Things to Know If You Are Planning an Early Withdrawal from Your Roth IRA

Don't miss out! Get our Helpful Financial Tips Newsletter

  • Latest Posts

  • How to Build a Retirement Plan That Covers Your Healthcare Needs

    How to Build a Retirement Plan That Covers Your Healthcare Needs

    By WiserAdvisor Insights
    May 22, 2025
  • 10 Ways to Diversify Your Investment Portfolio for Retirement

    10 Ways to Diversify Your Investment Portfolio for Retirement

    By WiserAdvisor Insights
    May 13, 2025
  • How AI is Changing Wealth Management and What It Means for You

    How AI is Changing Wealth Management and What It Means for You

    By WiserAdvisor Insights
    May 5, 2025
  • How to Protect Your Retirement Savings from Inflation

    How to Protect Your Retirement Savings from Inflation

    By Jonathan Dash
    April 28, 2025
  • Popular Posts

  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    October 30, 2023
  • Retirement Calculators

    Best Retirement Calculators to plan Retirement

    By WiserAdvisor Insights
    July 26, 2019
  • How Much To Save For Retirement By Age

    How Much To Save For Retirement By Age

    By WiserAdvisor Insights
    December 18, 2023

Categories

  • Business Finance (2)
  • Education Planning (31)
  • Estate Planning (28)
  • Financial Advisor (1)
  • Financial Advisor Guide (53)
  • Financial Planning (135)
  • Investment Management (94)
  • Personal Finance (16)
  • Portfolio Management (1)
  • Retirement (30)
  • Retirement Healthcare (1)
  • Retirement Planning (106)
  • Retirement Plans (1)
  • Uncategorized (2)

The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.

WiserAdvisor is America’s oldest and largest independent network of screened financial advisors. We make it easy and convenient for consumers to find and connect with advisors in their area. We have successfully helped over 100,000+ individuals find their best financial advisor since 1998 with no match fees, no commitments, no obligation, and complete confidentiality. WiserAdvisor has been featured in The Washington Post, The Washington Journal, ABC, CBS, Yahoo and has been seen in numerous other leading financial news and information websites.

FOLLOW US

  • Recent

  • Popular

  • How to Build a Retirement Plan That Covers Your Healthcare Needs

    How to Build a Retirement Plan That Covers Your Healthcare Needs

    By WiserAdvisor Insights
    May 22, 2025
  • 10 Ways to Diversify Your Investment Portfolio for Retirement

    10 Ways to Diversify Your Investment Portfolio for Retirement

    By WiserAdvisor Insights
    May 13, 2025
  • How AI is Changing Wealth Management and What It Means for You

    How AI is Changing Wealth Management and What It Means for You

    By WiserAdvisor Insights
    May 5, 2025
  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    October 30, 2023
  • Retirement Calculators

    Best Retirement Calculators to plan Retirement

    By WiserAdvisor Insights
    July 26, 2019

Contact Us

Corporate Headquarters

12150 Monument Drive, Suite 700
Fairfax, VA, 22033

Business Hours

8:30 AM – 5:00 PM EST (Monday – Friday)

Email Address

wa.assistance@wiseradvisor.com

Phone Number

(703) 651-2060

Fax Number

(703) 259-4487

  • Privacy Policy
  • Terms & Conditions
© Copyright 2025 WiserAdvisor.com. All Rights Reserved.