Key Takeaways:
Ask a thousand American adults what they need to retire and the average answer now lands at $1.26 million, down from $1.46 million a year earlier — a $200,000 retreat that reflects shifting sentiment rather than any change in what a given household must actually save.
The figure comes from asking people what they believe they need, not from modeling their spending, income, or lifespan. "Your retirement number is your finish line for savings," said Emily Green, head of wealth management at Ellevest. "I would look at it as the total amount of money you need to have saved and invested by the time you stop working to maintain your lifestyle and achieve your goals."
The Bureau of Labor Statistics Consumer Expenditure Survey put average annual household spending at $78,535 in 2024, up from $77,280 in 2023. That average spans all age groups, and older households often spend less once mortgages, commuting, and childcare costs disappear. Health care moves the other way. The standard Medicare Part B premium is $202.90 per person per month in 2026, up from $185 in 2025, with an annual Part B deductible of $283 and a Part A inpatient hospital deductible of $1,736 per benefit period, according to the Centers for Medicare & Medicaid Services. Higher-income retirees may also owe income-related surcharges.
Subtract guaranteed income from spending and the arithmetic becomes personal. Two lifetime earners may each collect a worker benefit, while a single-earner couple may receive one worker benefit plus a spousal benefit worth up to half of it. That difference alone can shift the required portfolio by hundreds of thousands of dollars.
The simplest way to size a portfolio is to divide the annual income gap by a withdrawal rate. A couple facing a $25,000 shortfall would need roughly $625,000 at a 4% starting withdrawal, about $714,000 at 3.5%, and around $833,000 at 3%. William Bengen's original research found that a 4% inflation-adjusted withdrawal survived every historical 30-year period in his sample, but that sample assumed a 30-year horizon. Retiring at 50 rather than 65 stretches the money across four decades or more, and the same income gap then demands a materially larger balance.
Tyler End, a certified financial planner and chief executive of Retirable, said the fixed side of the budget is where most plans break. "On the fixed side, you're going to look at factors like where you're going to live," End said. "Then, you get into the healthcare costs, and this is the biggest blind spot for a lot of people." Many retirees assume Medicare settles the question, then discover that premiums, copays, and long-term care sit outside it. Medicare generally does not cover extended custodial care in assisted living facilities or nursing homes, so several years of care can add a cost that no national average captures.
Taxes widen the gap further. Withdrawals from traditional 401(k) and IRA accounts generally count as ordinary income, and Social Security benefits can become taxable depending on total income. Two couples holding identical balances can therefore have very different amounts available to spend.
Younger savers increasingly track Coast FI, the point at which existing investments can compound to the retirement target without further contributions. The formula is the retirement number divided by (1 + r) raised to the number of years until retirement. A 30-year-old targeting $2.5 million at 65, assuming a 7% annual return, would need about $234,157 today. That is a far more tangible milestone than a seven-figure total, but it assumes a return that markets do not guarantee. Randy Porzel, wealth advisor and managing director at Hightower Signature Wealth, said rules of thumb are useful starting points and little more. "In many cases, they focus solely on what someone has accumulated rather than the lifestyle they want to support," Porzel said.
Most income-replacement estimates suggest retirees spend 70% to 90% of pre-retirement income, with Social Security replacing roughly 40% for a typical worker. Spending rarely follows a straight line. End noted that the first years of retirement often run hot as people travel and take up new hobbies, then cool as routines settle and health changes reduce activity.
The practical takeaway is that the number worth tracking is the gap between what a household spends and what it receives from guaranteed sources, multiplied by the years that gap must be funded. A paid-off home, a pension, an annuity, or a spouse still working can shrink that figure substantially, while an expensive metropolitan area or a family history of long-term care needs can raise it. Because spending, rates, and tax rules all move, the calculation is worth rerunning annually rather than setting once. Readers should confirm current Medicare premiums, tax thresholds, and benefit rules against the latest official announcements before acting on any figure here.
This article is for informational purposes only and does not constitute investment advice.
