The Magic Number And How Much You Actually Need To Retire

As we discussed in The 3 Bucket Principles, after you’ve set up your emergency fund of three to six months’ expenses, you should be saving 15 to 20 percent of everything you earn for your retirement. Even though it seems like a hard and fast rule to follow, sadly most Americans will not be ready when the time comes to step away from work.

According to the National Retirement Risk Index released by the Center for Retirement Research at Boston College, only about half of U.S. workers are actually on track to retire comfortably. (1) Only half! That means half of us are either going to have to work until we drop or we’re going to sink into some major debt. And neither of those sound appealing.

Retirement savings is a big problem in the U.S. where how comfortably someone can live in retirement is very dependent on that person taking responsibility for saving.- Coleen Pantalone, professor of finance at Northeastern University (1)

So why is it so hard to plan for retirement? I think it might be because there is no real way to know what you’re planning for. Imagine you’re going on a trip that will last 10 to 15 years. During this trip you have no idea where you will travel to, if you’ll get sick and need a hospital stay, and you’re not really even sure how long you’ll be gone. It could be 10, 15 or even 20 years long. How much do you save up for something like?

It’s the same with retirement. You know it’s coming but you have no idea of how long or how you’ll be spending your time and there are always those unexpected surprises life throws at you. So how should you save and plan?

What’s My Number?

In the financial business, there has been a lot of marketing placed around the concept of the “magic number” when it comes to saving for retirement. In fact, Fidelity and ING both had commercials where they spent millions (oh, the irony) on following the path to your retirement under the concept of “what’s my number?”

Conventional wisdom has believed that saving $1 million for your nest egg or having a retirement income of 70-80 percent of your current salary is a good safety net. (2) Sounds good, but that’s a pretty big generalization to make. Most people wouldn’t be able to save that kind of a money in a couple lifetimes.

As I mentioned in the blog post about “How Much Money Do You Need to Make You Happy,” I think many of the same thought processes hold true for retirement.

Wes Moss, managing partner and chief investment strategist at Capital Investment Advisors, surveyed 1,350 retirees about their assets, net worth and income, and home equity to understand how money correlated with their levels of happiness. He found that most people can be happy in retirement with savings of about $500,000. A higher number can buy more happiness, but only to a point.

“There is a plateau-ing effect above that number, and the higher you get the rate of increase gets smaller. I call it diminishing marginal happiness.”- Wes Moss (3)

Isn’t that exactly what we talked about? Yes, money can bring you happiness when it comes to decreased stress levels and a feeling of security, but once you hit a point of stability, you don’t really need anymore. So we just have to find that sweet spot of security. But according to a survey by Americans for Secure Retirement, we are more worried about finding that security than we ever have been. The survey showed that 88 percent of all Americans are worried about “maintaining a comfortable standard of living in retirement.” That is up from 73 percent in 2010. (4)

So how do we know we’ve found our security level? Is that magic number attainable and real?

Does the Magic Number Exist?

After helping over a thousand families evaluate and plan for retirement, I feel like I’ve seen both sides of the coin. Some clients may retire with $250k in their IRA. They may live off of social security and a modest monthly withdrawal and are as happy as can be. As far as they are concerned, they are set. Their spending habits and lifestyle are refreshingly simple and it may not take much to make them happy financially.

On the other end of the spectrum, some may have a few million in liquid investment money. Even with those kinds of funds, they could be beyond stressed about retiring and having enough money. In fact, they could be under the impression that if they could only have a couple more million, everything would be easier. They may feel that an extra couple million could be a cushion in case things go bad in the stock market and economy.

Wow! That would sound completely crazy to most people.

I used to think that $2 million was the magic number. Without boring you with all the details, typically a financial planner is going to advise you to take four percent of whatever you’re saving in retirement and that’s what you can live on for the rest of your life. So if you have $2 million, you could take $80k, plus your social security and live completely comfortably. If someone said, “I need to live on $200k,” then that person would need to save $5 million. That’s how I used to think, and how our industry trained us, that we could get to a magic number.

The fact is that the road to retirement has far too many twists and turns to pin down your savings effort to any single number — magic or otherwise. (5)

But now I think- now I know- there’s more to it than that. Most experts agree while there is no real magic number when it comes to saving for retirement, planning is an absolute must if someone wants to reach retirement knowing his lifestyle will not have to change much. (1)

If someone obsesses over the all-consuming magic number, they will spend their lives constantly saving every penny and never actually living life. They will get to retirement and have all kinds of money saved but will have worked so hard that they are too exhausted and worn down to enjoy retirement. This goes back to the 3 Buckets and balancing your life.

Once you realize that there is no magic number and that you just need to learn how to be a good steward of your money, retirement won’t seem so unattainable. Keep putting that 15 percent in your retirement savings. Have an emergency fund. And even if you’re putting $50 a month in your kid’s college fund, you’ll be doing what you can, and I believe in my heart of hearts that is what matters.

If you’re making $40k a year, you’re not going to be saving $4k a month. But you can potentially save $75 a month, and then 2 years later raise it to $100 a month. You might not make it to a million, but you’re still saving. You’re doing the best you can do and it’s better than nothing. Just by being a disciplined saver you are already far ahead of average in this country (sidenote- please don’t make “average” your benchmark when it comes to our population, as we are a society generally not on the right financial path).

Setting Up for Success

We all need to have principles in place when it comes to money. What are your spending and saving guidelines? How are you kept accountable? And how do you maintain the balance of living a comfortable lifestyle while also saving for the future? Here a couple tips to help you reach your own level of security when it comes to your retirement savings.

No more debt: Do what it takes to zero out all your mortgages, car loans and other debts. Without these hovering over you in retirement, you’ll be able to use the money you’ve saved on daily living expenses.

Save more than you need: Don’t be super conservative when calculating your needs. While it may look better on paper right now, once you get there, you might not want to be a tight budget. Which brings me to my last tip…

Plan to enjoy retirement: You finally are free of daily responsibilities. Plan trips, see your family, or take up a new hobby. When figuring out your number, make sure to add in enjoyment expenses. You can’t take the money with you, but the experiences and memories you can leave behind are worth more than any IRA I’ve ever managed.


  1. How Much is Enough for Retirement? Americans are Still Falling Short by Chris Metinko
  2. Finding Your ‘Magic Number’ for Retirement Savings by Kelli B. Grant
  3. Here’s the Magic Number You Need to Retire Happy by Mark Miller
  4. 12 Terrifying Retirement Facts Keeping Boomer- And Their Advisors- Up at Night
  5. Ditch ‘The Number’ and Find a Realistic Retirement Savings Goal by Walter Updegrave

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of David Adams and not necessarily those of Raymond James. Please consult with your financial professional about your individual situation. Investing involves risk and investors may incur a profit or a loss regardless of strategy utilized.

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