It may come as a shock, but in 2025, Americans think they'll need less to retire than they did in...
It may come as a shock, but in 2025, Americans think they'll need less to retire than they did in 2024.
According to the Northwestern Mutual Planning & Progress Study, "Americans' 'magic number' to retire comfortably in 2025 is $1.26 million, $200,000 less than the $1.46 million reported last year and nearly flat with 2022 and 2023 estimates."
Figuring out the right nest egg to support your retirement lifestyle isn't a simple calculation. Financial planners typically recommend evaluating expenses and lifestyle needs as the first step in determining what's needed to retire comfortably.
"It's not about hitting some magic number, but it's about how much your lifestyle costs and how long you need your money to last," said Aaron Cirksena, CEO of MDRN Capital in Annapolis, Maryland, in an email.
"Your net worth needs to support fixed expenses like housing and health care, plus the life you actually want to live in retirement," he said. "Add in inflation, market volatility and longevity risk, and you'll quickly see why the number varies so much person to person."
The money saved for retirement is intended to fund an individual's or couple's lifestyle. There is no target amount that suits everyone.
"Being wealthy in retirement isn't defined by a single dollar amount, it's defined by freedom, security and the ability to live the life you want without financial stress," said Linda Jensen, CEO of Heart Financial Group in Olympia, Washington, in an email.
"For some, that might mean $1.5 million. For others, it could be $10 million or more," she added.
However, Jensen pointed out, financial institutions often use benchmarks to offer general guidance.
"For example, many consider a net worth of $5 million or more as entering high-net-worth territory, and $10 million or more as very high-net-worth," she said.
However, wealth in retirement is also about how efficiently assets generate income, Jensen added. That's where financial planning strategies, such as portfolio structure, tax planning and risk management dovetail with personal spending habits.
Determining Retirement Income Needs
If you have an expensive retirement hobby, such as owning horses, sailing or flying a private plane, you'll need to account for that when you decide what income you'll require.
But even if you envision a simpler lifestyle that includes gardening or playing pickleball at the local park, you'll still have to be sure you've covered your bases.
"Start by mapping out your fixed and variable expenses, then add a buffer for health care, inflation and the unknowns," said Cirksena. "Don't just plan for the averages and stress-test for the bad years."
A retirement income plan should factor in Social Security, pensions and any passive income sources, such as real estate, to determine exactly how much the portfolio needs to generate, plus sustainable withdrawal rates.
"The traditional 4% rule is outdated," Jensen said, referring to the well-known withdrawal strategy developed by financial planner William Bengen in the 1990s. The rule aims to ensure retirees won't outlive their savings, although current low bond yields, longer life expectancies and market volatility are causing many planners to revise the rule.
A glance at a chart for the S&P 500 between 2000 and 2013 shows no growth in that time frame. Other asset classes, such as U.S. small-cap stocks and international indexes, showed gains despite volatility.
[Read: Retirement Challenges in 2025: Market Volatility, Inflation and Social Security]
Flexibility Beats a Magic Number
Those factors underscore one of the biggest challenges for retirement planning: Lengthy market stagnation and unpredictable price swings can both affect the sustainability of a withdrawal strategy.
"In 2025, even diversified portfolios saw declines across stocks, bonds, gold and silver, offering no safety net," Jensen said. "Rigid withdrawal strategies can lead to portfolio depletion during downturns."
She added that today's retirement income planning must be flexible, tax-efficient and designed to withstand market volatility and inflation.
"It's not just about a target number; it's about building an income strategy that adapts to real-world conditions," she said.
When the market shows pronounced fluctuations and retirees must take required minimum distributions from qualified accounts, there's a risk of taking out the principal without any gains.
That means locking in losses and having less principal for future growth.
No two retirement savers get identical investment results because of differences in asset allocation, the timing of contributions and withdrawals, and individual behavioral decisions.
"But, those who follow a specific long-term investment plan can expect to have better average returns than those who do not," said David Rosenstrock, director of financial planning and investments at New York's Wharton Wealth Planning, in an email.
Investors who put too much in cash, a common mistake during periods of market volatility, will see their spending power eroded due to inflation. However, retirees who lean too heavily on stocks may see devastating declines due to market volatility. Unlike younger investors who have time to make up portfolio losses, retirees need to balance capital preservation with growth.
"You should select the best investment strategy for your personal goals, needs and circumstances," he said. "Safety at the expense of growth can be a critical mistake for those trying to build an adequate retirement funding strategy. On the other hand, if you invest too heavily in growth investments, your risk is heightened."
Update 05/22/25: This story was published at an earlier date and has been updated with new information.