When planning for retirement, most people want a simple answer to a complicated question: “How much is enough?”
According to Northwestern Mutual’s 2025 Planning & Progress Study, Americans think they’ll need about $1.26 million to retire comfortably.
This number has actually dropped from $1.46 million in 2024, showing how economic changes affect our retirement expectations. But national averages only tell part of the story—your personal retirement number depends on your lifestyle, where you’ll live, and several other important factors.
Let’s break down what really determines your retirement needs and how to build a plan that works for your specific situation.
What Shapes Your Retirement Number?
Before you set a target savings amount, think about these key elements that will shape your financial needs:
1. The Lifestyle You Want
Your vision for retirement will dramatically affect how much money you’ll need:
- Will you travel often or stay close to home?
- Are you planning to downsize your living situation?
- What activities and hobbies will fill your days?
- Do you expect to help family members financially?
Someone planning worldwide travel needs a much larger nest egg than someone whose retirement dreams include gardening and local community involvement.
2. Where You’ll Live in Retirement
Location might be the biggest factor in your retirement budget. The U.S. News & World Report cost of living rankingsshow dramatic differences between states.
Arkansas, Mississippi, and Alabama top the list for affordability, while places like Hawaii, California, and New York demand much more from your retirement savings. Moving from an expensive state to an affordable one could slash your needed retirement savings by 30-40%.
3. Health Costs and Insurance
Many retirement calculators overlook one of the biggest expenses: healthcare. A 65-year-old couple retiring in 2025 should budget around $315,000 for healthcare throughout retirement—and that doesn’t include potential long-term care.
Medicare helps but doesn’t cover everything. You’ll still pay for supplemental insurance, deductibles, copays, and services Medicare doesn’t cover.
4. How Long Your Retirement Will Last
Retirement is lasting longer as people live longer. Northwestern Mutual’s study showed 34% of Gen Z expect to live to 100, while only 23% of Baby Boomers anticipate reaching that milestone.
A retirement that lasts 30+ years obviously requires more savings than one lasting 20 years. Your family health history and personal health habits offer clues about your potential longevity.
How Much to Save Based on Your Income
While the million-dollar figure makes headlines, your personal retirement target likely ties closely to your current earnings.
How Much Money Do You Need to Retire with $100,000 a Year Income?
If you earn $100,000 now, financial experts typically suggest planning to replace 70-80% of that in retirement, meaning you’ll need about $70,000-$80,000 yearly.
Using what financial planners call the 4% rule (explained below), you’d want roughly $1.75-$2 million saved to generate that income throughout retirement.
How Much Money Do You Need to Retire with $80,000 a Year Income?
For someone making $80,000 annually, replacing 75% would mean needing about $60,000 yearly in retirement. Following the same calculations, this translates to around $1.5 million in retirement savings.
How Much Money Do You Need to Retire with $200,000 a Year Income?
Higher earners often find they need to replace a smaller percentage of their working income because they currently put more toward savings and taxes.
Someone earning $200,000 might aim to replace 60-70% of their income, needing $120,000-$140,000 yearly in retirement. This would require approximately $3-$3.5 million in savings.
How Long Will Your Money Last?
Running out of money ranks among retirees’ biggest fears. According to CNBC’s reporting, 51% of Americans think they might outlive their savings.
How Long Will $1.5 Million Last in Retirement?
With $1.5 million in savings and using the 4% withdrawal approach, you could take out about $60,000 yearly (before taxes). How long that lasts depends on several factors:
- In expensive states like California: Perhaps 20-25 years
- In affordable states like Arkansas: Potentially 30+ years
- For heavy travelers: Likely 15-20 years
- With modest spending habits: Possibly 35+ years
How Long Will $100,000 Last in Retirement?
On its own, $100,000 isn’t enough for most retirement plans. Even in the most affordable states, $100,000 would last only 2-3 years if it’s your only money source.
However, $100,000 works well as extra support alongside Social Security, pensions, or part-time work income.
Is $1.5 Million Enough to Retire at 60?
Leaving the workforce at 60 means funding potentially 30+ years of retirement. Whether $1.5 million works depends on:
- What you plan to spend yearly
- How you’ll handle healthcare costs before Medicare at 65
- When you’ll claim Social Security
- Rising prices over time
- What returns your investments generate
- Whether you’ll work part-time
For many Americans with moderate spending habits, $1.5 million could work for retiring at 60, especially with Social Security benefits starting at 62 or later.
Smart Retirement Planning Approaches
The 4% Rule: Still Worthwhile?
The 4% rule suggests withdrawing 4% of your retirement savings in your first year, then adjusting that amount for inflation annually. This strategy helps stretch your money over about 30 years.
This rule has guided retirement planning for years, but today’s economic reality has some financial experts suggesting a more conservative 3-3.5% withdrawal rate, especially for those retiring early.
How Your Location Affects Your Budget
Where you retire dramatically influences your costs:
- Housing: The median home in Arkansas ($195,000) costs roughly one-fifth of California’s typical home ($785,000)
- Taxes: Seven states have no income tax, and some states tax even Social Security benefits
- Medical costs: Healthcare prices differ dramatically across regions
- Transportation: Rural areas need more driving, and urban areas have public transit but cost more overall
Creating a Realistic Retirement Budget
A practical retirement budget groups expenses into three categories:
1. Must-Have Expenses
These non-negotiable costs include:
- Housing (mortgage/rent, taxes, insurance, upkeep)
- Utilities
- Healthcare costs
- Food
- Basic transportation
- Essential clothing
- Important insurance
2. Nice-to-Have Expenses
These improve quality of life but aren’t absolute necessities:
- Restaurants
- Entertainment
- Travel
- Hobbies
- Gifts
- Additional clothing
- Pet costs
3. Dream Expenses
These represent your aspirations:
- Charitable donations
- Education funds for grandchildren
- Inheritance plans
- Supporting family members
Categorizing expenses this way helps you make better spending decisions and set more realistic savings targets.
How Social Security Fits In
Social Security provides crucial income for many retirees, though many worry about its future. The Northwestern Mutual study indicated that Social Security concerns rank as the second most pressing retirement question for Americans.
The average monthly Social Security benefit in 2025 is about $1,907, or roughly $22,884 yearly. For a couple both receiving benefits, that’s nearly $46,000 annually in guaranteed income.
While this won’t cover everything for most retirees, it reduces what you need from savings. If you need $70,000 yearly in retirement and get $23,000 from Social Security, you only need to pull $47,000 from your savings each year.
When to Talk to a Financial Professional
Consider talking with a financial advisor if:
- You’re not sure if your savings rate is adequate
- You need help structuring investments for retirement income
- Your tax situation is complicated
- You’re balancing competing financial priorities
- You’re within 5-10 years of retiring
- You need advice about medical costs or long-term care
- You want to leave money for family or favorite causes
- You’re confused about when to claim Social Security
A good advisor can offer advice tailored to your individual situation.
The Bottom Line
While the $1.26 million figure gives us a reference point, your personal retirement needs will differ based on your income, lifestyle choices, where you’ll live, and how long you might live.
Instead of chasing a generic target number, build a retirement plan that reflects your actual expenses and goals. Map out what you’ll really spend money on, then calculate what you need to save and how to invest effectively.
Check in on your plan as your life changes and economic conditions shift. Taking charge of your retirement planning today helps build the secure future you want.
Frequently Asked Questions
What is the “magic number” for retirement in 2025?
According to Northwestern Mutual’s 2025 Planning & Progress Study, Americans believe they need approximately $1.26 million to retire comfortably. This figure is down from $1.46 million in 2024, indicating a slight decrease in retirement savings expectations. However, this is just an average, and your personal “magic number” depends on factors like your desired lifestyle, location, healthcare needs, and expected longevity.
How does where I live affect how much I need to retire?
Location significantly impacts retirement costs. According to U.S. News & World Report’s cost of living rankings, states like Arkansas, Mississippi, and Alabama offer the lowest cost of living, while Hawaii, California, and New York are among the most expensive. The difference can be dramatic—retiring in a low-cost state might require 30-40% less in savings than retiring in a high-cost state with the same lifestyle. Consider housing costs, state taxes, healthcare expenses, and transportation when choosing your retirement location.
What is the 4% rule, and is it still valid in 2025?
The 4% rule suggests you can safely withdraw 4% of your retirement portfolio in your first year of retirement, then adjust that amount annually for inflation, with your money likely lasting 30 years. While this rule has been a retirement planning cornerstone for decades, today’s economic environment has led some financial experts to suggest a more conservative 3-3.5% withdrawal rate, especially for those retiring early or expecting a very long retirement. Lower interest rates and market volatility have caused some to question whether the traditional 4% rule remains fully applicable.
How much do I need to save if I want to retire with $100,000 in annual income?
If you want $100,000 in annual retirement income, you’ll need significant savings. Using the 4% rule, you would need approximately $2.5 million in retirement savings to generate $100,000 annually. However, this calculation should account for Social Security benefits, which average around $22,884 annually in 2025. If you receive this average benefit, you’d need to generate about $77,116 from your savings, requiring closer to $1.93 million using the 4% rule.
Will Social Security be enough for my retirement?
Social Security alone is unlikely to provide enough income for a comfortable retirement for most people. The average monthly Social Security benefit in 2025 is approximately $1,907, providing about $22,884 annually. This is well below what most people need for a comfortable retirement, especially in higher-cost areas. Social Security was designed to replace only about 40% of pre-retirement income for average earners, while most financial experts recommend replacing 70-80% of pre-retirement income for a comfortable retirement.
How does inflation affect my retirement savings?
Inflation erodes purchasing power over time and is a critical consideration in retirement planning. Even with moderate inflation of 3% annually, the cost of goods and services doubles approximately every 24 years. This means that if you need $50,000 for annual expenses at the start of retirement, you might need $100,000 annually 24 years later just to maintain the same lifestyle. Your retirement plan should include investments that have growth potential to help outpace inflation over the long term.
Should I pay off my mortgage before retiring?
Whether to pay off your mortgage before retiring depends on your specific financial situation. Benefits of paying off your mortgage include reduced monthly expenses, less debt stress, and potentially improved cash flow. However, it might make more sense to keep your mortgage if you have a low interest rate, can earn higher returns by investing the money instead, need liquidity, or would deplete your retirement savings to pay off the mortgage. Consider consulting a financial advisor for personalized guidance based on your specific circumstances.
When should I start taking Social Security benefits?
The optimal time to begin collecting Social Security benefits varies based on individual circumstances. You can start collecting reduced benefits at age 62, full benefits at your full retirement age (66-67 depending on birth year), or increased benefits if you delay until age 70. The decision should consider factors like your health and family longevity, financial need, whether you plan to work in retirement, spousal benefits, and your overall retirement income strategy. Generally, if you can afford to wait and expect a long retirement, delaying benefits can result in significantly higher lifetime payments.
