If you want to retire in comfort, investment firms and news headlines tell us, you may need $1 million 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.
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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, 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.
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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.
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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.
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