Do we really need $1M in retirement savings? Not even close, one top economist says

If you want to retire in comfort, investment firms and news headlines tell us, you may need a million dollars in the bank.

Or maybe not. One prominent economist says you can retire for a lot less: $50,000 to $100,000 in total savings. He points to the experiences of actual retirees as evidence.

“You Don’t Need to Be a Millionaire to Retire,” says the headline of a column penned by Andrew Biggs, a senior fellow at the American Enterprise Institute think tank, and published in April in The Wall Street Journal.

Most Americans retire with nowhere near $1 million in savings. The notion that we need that much money to fund a secure retirement arises from opinion polls, personal-finance columns and two or three rules of thumb that suffuse the financial planning business.

Financial advisers tell you to save 10 times your annual salary for retirement, enough cash that you can live on 4% of the balance for a year. In one widely reported survey, Americans said they would need $1.46 million in the bank to retire comfortably.

Protect your assets: Best high-yield savings accounts of 2023

Most retirees say they’re doing just fine, thank you

Biggs disagrees. To prove his point, the economist looked at responses to the federal Survey of Household Economics and Decisionmaking between 2019 and 2022.

The survey asked retirement-age Americans, aged 65 to 74, how well they were managing financially.

A majority, roughly 85%, said they were just fine: They were living comfortably, or at least “doing OK.”

Only 15% said they were struggling.

The finding matters, Biggs says, because most retirees have much less than $1 million in the bank. In the federal survey, the typical senior who reported a satisfactory retirement had $50,000 to $100,000 in savings.

“It’s impossible to find any evidence that seniors need even a fraction of $1.46 million in savings to be financially secure,” Biggs wrote.

By his argument, retirees don’t need nearly so much savings as financial planners say they do.

The average couple that retired in 2022 reaped nearly $46,000 in annual Social Security benefits, by Biggs’s calculations. While that sum is “hardly extravagant,” he wrote, “a typical couple can expect an income more than twice the elderly poverty threshold before they touch a penny of their own savings.”

Biggs says retirement planners overstate how much income retirees actually need, and how much they will spend, essentially as a way to drum up business.

Do you really need $1.46 million to retire in style?

Reactions to Biggs’s column ranged from admiration to outrage. Some readers reposted the piece on X with praise. One critic quipped, “You don’t need to be a millionaire to retire and do NOTHING!!!”

Biggs is a noted conservative economist and something of a contrarian. Earlier this year, he and a colleague sparked outrage with a paper that argued for eliminating the 401(k) plan.

His new assertion, that people don’t need a million dollars to retire in comfort, flies in the face of common wisdom in the retirement-planning industry.

“What about rising health care costs?” said Lili Vasileff, a certified financial planner in Greenwich, Connecticut. “What about more older adult children living for free with older parents? What about divorces in later life that halve all assets on the cusp of retirement?”

Perhaps the most provocative claim in Biggs’s analysis is that only a few retirees face financial challenges. 

Alicia Munnell, director of the Center for Retirement Research at Boston College (and a past collaborator with Biggs), estimates that at least two-fifths of retirees are struggling financially.

In the 2022 edition of the federal Survey of Consumer Finances, when seniors were asked how they would handle a financial emergency, only 58% said they could rely on savings. To Munnell, that figure reflects the depth of financial insecurity among retirees.

Invest wisely:Best online brokers.

'You don't want to say, "I really screwed up"'

Why, then, did only 15% of seniors in the other federal survey, cited by Biggs, say they were struggling? 

Munnell thinks many retirees are reluctant to discuss their financial problems in surveys.

“When people are asked about their well-being, I think there’s a certain pride,” she said. “You don’t want to say, ‘I really screwed up.’”

Though Munnell disagrees with Biggs on the financial well-being of American retirees, she applauds his stance that you don’t need a million dollars to retire.

“I don’t think it helps to hold out unrealistic savings goals and to exaggerate how much money people need to fund a comfortable retirement,” she said.

The million-dollar retirement is a frustrating quest, Munnell said, because most of us do not retire as millionaires.

How much retirement savings do retirees actually have?

The typical senior with a retirement account has about $200,000 saved, according to data for households in the 65-74 age range from the 2022 Survey of Consumer Finances.

But only about half of those households report having retirement accounts at all. 

On this point, Biggs and his colleagues disagree. He contends that many seniors have other kinds of savings, not to mention pensions. Munnell believes that Biggs is overconfident in the security of American retirees.

“I don’t know people, really, who have retirement savings who don’t have a retirement account,” she said.

Retirement experts often say people will need about 80% of their pre-retirement income to fund their retirement years.

Social Security covers only about half of that, according to the Social Security Administration. And so, for a comfortable retirement, we are urged to save.

One rule dictates that we should try to save 10 times our annual salary to supplement our Social Security income. For a typical American household, that comes to nearly $750,000, or 10 times the median household income of $74,580.

And then there is the 4% rule: Plan to withdraw 4% of your retirement savings to cover your annual living expenses, adjusting the figure for inflation each year.

Some experts say 4% is too low; others contend it’s too high. Either way, the message is clear: If you are going to live on a single-digit percentage of your retirement savings, you will need a lot of it.

Retirees 'reduce their spending pretty significantly' as they age

Biggs believes those rules exist largely so that investment houses can sell investment products, and so personal-finance websites can attract pageviews. 

He points to the 80% rule: Not many retirees, he reasons, will ever spend that much of their working income in retirement.

“For a long time, 70% was the recommended mean for middle-income retirees,” he said in an email to USA TODAY, “and it’s crept up without (to my mind) particularly strong evidence.”

The 4% rule is a little harder to critique, he said, “but one thing we now know is that retirees reduce their spending pretty significantly as they age.” Older retirees travel less, eat less and spend less on children, Biggs said. Medical costs rise, but insurance covers most of them.

Will the government take away my 401(k)?Some economists say accounts aren't worth it.

Retirement experts say the guidelines are meant as aspirational goals for working people to plan their retirement.

“Those rules of thumb are helpful for folks in their early career, their mid-career,” said Douglas Ornstein, a director with TIAA Wealth Management, part of the financial services nonprofit. “By the time you’re five years out from retirement, those rules are probably not so helpful anymore.”

No two retirements are alike, financial advisers say. Some retirees are still making mortgage payments or supporting grandchildren. Others have neither dependents nor debt.

“If you’re living in Manhattan, yeah, you probably need a million dollars, if not more,” said Christopher Lyman, a certified financial planner in Newtown, Pennsylvania. “If you’re living out near Lancaster, Pennsylvania, with the Amish, there’s not a lot going on down there. If you’ve got $50,000, you’re probably okay.”