Ask Americans how much they need to retire, and one number jumps to mind: US$1 million (S$1.27 million).
Survey after survey underscores how deeply the figure has taken hold. Empower found Americans on average peg their target at US$1.1 million. Schroders lands at US$1.3 million, while Northwestern Mutual’s 2026 poll puts that number closer to US$1.5 million.
“People like to anchor to this one simple number,” said Ms Anqi Chen of the Center for Retirement Research at Boston College. “But that’s like saying during your working years, ‘You should have this one salary number, otherwise you’re not living a good life.’”
The problem with the million-dollar benchmark is that it oversimplifies retirement planning: some people may need or want much more to enjoy their golden years. For others, the number feels so big and unattainable that it is not worth even trying to reach.
Better rules of thumb exist that are still simple, usable and far more grounded in how people actually live and spend. They offer a clear way to build a retirement plan that lowers the odds of running out of money, whether or not you ever get anywhere near US$1 million – or end up needing far more.
The simplicity that makes the US$1 million goal appealing is also why it is no longer very useful.
Retirement mathematics has become much harder in recent decades. For one, the shift from defined-benefit pensions to defined-contribution plans puts it on individuals to calculate how much they will need.
Only 14 per cent of private sector workers in the US have access to defined benefit pensions these days. Such plans made retirement planning simpler for some people, said Dr David Blanchett, the head of retirement research for Prudential Financial and portfolio manager for PGIM.
The other 86 per cent of private workers have to figure it out on their own. For them, a simple number is comforting: one survey from Allianz found people fear running out of money in their final years more than they fear dying.
Meanwhile, it has become increasingly difficult to determine future costs due to inflation and economic uncertainty. A 65-year-old who retired in 2025, for example, could expect to spend 4 per cent more on healthcare costs than someone who stopped working just a year earlier, according to Fidelity Investments.
People are also living longer, so they will need more money both to pay bills and health costs and to enjoy themselves. A person with a 10-year retirement could target initial spending that is about 11 per cent of their pot of savings, while someone with a 20-year retirement would only want to target spending about half that rate, Dr Blanchett said.
Researchers and planners understand the appeal of a big number, but suggest some other ways to think about what you will need.
A common guideline is that retirees will need about 70 per cent to 80 per cent of their pre-retirement income each year to maintain their standard of living. Taxes, commuting costs and other day-to-day expenses often decline once work ends.
Someone earning US$100,000 a year, for example, might aim for annual retirement income of US$70,000 to US$80,000 – which over 20 years is somewhere around US$1 million. But for someone making US$500,000, it will be much more than that.
The second framework uses people’s current salaries to help figure out future needs. It is not an exact science: various firms have online tools with their own baked-in assumptions about returns, inflation and longevity.
Fidelity, for instance, recommends that 40-year-olds have three times their annual salary saved for retirement and that 60-year-olds have eight times. T. Rowe Price suggests around two times your salary by 40 and nine times by 60.
The two approaches do different jobs. Income replacement can estimate what you will need to maintain your current quality of life in retirement. Salary multiples are useful for judging progress while retirement is still years away.
Ms Christine Benz, director of personal finance and retirement planning for Morningstar, likes the idea of creating your own “poll of polls” from these calculators – using several, reading the assumptions and deciding which are most realistic for your life now and the one you expect to have in retirement. A retirement plan gets better once it stops chasing a magic number and starts dealing with real life.
Mr Bill Bengen, a financial adviser who popularised the 4 per cent rule, said the biggest problem he sees among retirees is that they do not spend the money they worked so hard to save. “They just become afraid,” he said.
The 4 per cent rule – the long-running back-of-the-envelope formula advisers have used to estimate how much retirees can withdraw from a nest egg each year without exhausting it – is part of the problem. Many people took the US$1 million target, applied the 4 per cent rule, concluded it would allow for an approximate annual US$40,000 withdrawal and stopped there.
For many people, it ends up being too conservative, he said. “You’ll end up with all kinds of money. Your heirs will love you, but you know, you gotta live a life.” BLOOMBERG
Source : https://www.straitstimes.com/business/invest/the-1-million-retirement-myth
