The 'magic number' of $1.3M for retirement: on the money, or off the mark?

A recent report on retirement savings says a comfortable retirement will take the average American $1.3 million in savings to achieve – nearly $200,000 less than the previous year's estimate.

The latest survey research report from Northwestern Mutual drew from a survey of more than 4,600 adults across the US in January. The consensus was down from the previous read of $1.46 million published last year, though it's in line with prior readings in 2022 and 2023.

For those thinking seriously about their retirement, having that hard dollar figure target might be a valuable anchor point. But according to several financial planning and wealth industry experts speaking to InvestmentNews, the conversation should by no means end there.

Crystal Cox, senior vice president at Wealthspire Advisors, sees the magic number of $1.26 million in retirement as one of the many useful rules of thumb for financial planning – think the rule of 72, the 60/40 formula for balanced portfolios, and the 4 percent rule for retirement withdrawals.

"[The $1.26 million] is just probably more of a rule of thumb or starting place," Cox says. "Whether it's too high, too low, or just right, 100 percent depends on the person."

Cox argues that a person's retirement income sources can make a major difference. A retiree working part-time, for example, could experience a very different outcome from someone who relies more on Social Security. That's not even counting the size of the benefit payments, which could be higher or lower depending on the contributions someone made in their working years and how early they started claiming their Social Security benefits.

Rob Schultz, wealth manager and senior partner at NWF Advisory Services, highlighted how the average Social Security retirement benefit for retired workers in 2024 amounted to roughly $1,907, according to the Social Security Administration. With most traditional pensions having faded into extinction, he says retirees will have to plug any gap between that number and their actual income needs by drawing from their personal savings and investment portfolio.

"Assuming a withdrawal strategy aligned with the 4 percent rule, a retiree with a $1.26 million portfolio could reasonably generate approximately $4,200 per month, gross of taxes," he says. "Combined with Social Security, this supports an estimated annual income of $73,284, inclusive of taxes."

That may be enough to support a modest lifestyle in many areas of the US, but Schultz says it might not rise to the level of "comfortable" as it doesn't account for long-term care, healthcare emergencies, and other types of expenses one may encounter in retirement.

Matthew Gaffey, president at Corbett Road Wealth Management, pushed back against the notion of the "average" American, noting how each person can have different thresholds of what living "comfortably" in retirement means. And while headlines of a "magic number" can raise eyebrows and get clicks, he sees it as "relatively useless data to most readers who are actually doing any amount of real retirement planning" – especially when you factor in health and medical risks.

"The average American may not have the same genetic predisposition that is common in your family and will likely require expensive (more than average) healthcare costs," Gaffey notes. "On the other hand, you may come from a long line of people that have longevity on their side.  It’s great to hear from a health standpoint, but that also results in a bigger number that accounts for the additional years spent above ground." 

Based on thousands of retirement analyses he's run for different clients, Gaffey says expenses can also have a dramatic impact. 

"I’ve seen teachers who live modestly and have a pension result in significantly higher chances of making it through retirement with a surplus," he says. "On the other hand, I’ve seen attorneys who bring a much higher level of annual income, but fall dramatically short of their retirement goals, given the individual’s propensity to spend more on luxury items."  

Finally, Kevin Kennedy, senior vice president and chief sales & marketing officer, Consumer Markets at Pacific Life emphasized the role of annuities in the retirement income conversation. While everyone has unique goals and financial realities, he points to annuities as a way to give retirees more confidence to spend money in their golden years. 

"Outside of Social Security retirement benefits and pensions, annuities are the only way for clients to create protected lifetime income," Kennedy says. "And while that magic lump sum may dwindle over time and be subject to inflation and longevity risks, annuities can provide clients with a steady cadence of protected income they can’t outlive."