Retirement. That beautiful goal that many of us have in the back of our minds as we clock into work day in and day out. What will it look like? Will it be globetrotting around to different nations to see the great natural and archeological sites around the world? Perhaps it’s long days one a beach somewhere with a cold drink in hand and warm sun shining on your face? Or maybe it’s just simple days at home with the garden and grandkids. Whatever your ideal retirement looks like there’s one thing that’s for certain, you’ve pictured it – and probably time and time again at that. But, it has grown ever increasingly difficult for the average American to retire and it is more important now than ever to have a plan for that retirement.
So, before you can fully embrace this well-deserved chapter, there’s a crucial question to address: How much money do you need to retire comfortably?
Understanding the Retirement Savings Landscape
According to the 2025 Northwestern Mutual Planning & Progress Study, Americans believe they need approximately $1.26 million to retire comfortably. This figure, often referred to as the “magic number,” serves as a benchmark for retirement planning. While you could get by on less, or live comfortably on more, this is the number that most Americans should aim for in order to not run out of money and still maintain their current lifestyle from retirement until the end of their life.
However, the reality is that the average retirement savings among U.S. adults is significantly lower, highlighting a substantial gap between retirement goals and actual savings.
The 4% Rule: A Guiding Principle
A commonly used guideline in retirement planning is the 4% rule. This rule suggests that retirees can withdraw 4% of their retirement savings in the first year of retirement, adjusting that amount for inflation in subsequent years, to ensure their savings last for approximately 30 years.
For instance, if you have $1 million saved, you could withdraw $40,000 in the first year. However, it’s essential to consider factors like market performance and personal circumstances, as some experts argue for more flexible withdrawal strategies. You can find a more in-depth overview of this concept here.
Geographical Impact on Retirement Costs
Where you choose to retire significantly influences how far your savings will stretch. From housing to food costs, there are numerous factors to consider when choosing the location that you want to retire in.
Most Affordable States to Retire in 2025:
- Alabama: Boasts a cost of living nearly 16% below the U.S. average, with low costs for housing, transportation, and groceries.
- Mississippi: Offers affordable housing expenses and tax-frendly policies for retirees. Also consistently ranks as the cheapest state to live in the entire United States of America.
- Arkansas: Known for its low property taxes and cost-effective healthcare options. There is also much scenic natural beauty to be offered for free throughout the state.
Most Expensive States to Retire in 2025:
- California: High housing costs, tax burden, and living expenses make it one of the priciest states for retirees. Here, the magic number needed to retire is a little higher at just shy of $1.5 million.
- New York: Elevated costs in urban areas can strain retirement budgets. But, those already living in the city previously may benefit from rent-stabilization policies for cheaper housing as costs around the country continue to rise.
- Alaska: While offering natural beauty, it comes with higher transportation and utility costs. Furthermore, most goods have to be flown in from the continental United States which leads to higher prices for many basic goods in the state.
That being said, there are numerous reasons individuals decide to retire where they do and it’s important to consider all the factors relevant to you beyond simply which state is cheapest to retire in. People may decide to stay somewhere within close proximity to family; they may not want to leave the culture or town they grew up in; they may need to remain near a trusted healthcare professional or facility; or, quite simply, that’s just where their home is. Still, if you’re able, sometimes it can be a good idea to sell your home in a place with an expensive housing market and downsize (or even upsize in some cases) somewhere cheaper to help make that retirement money stretch.
Retiring Abroad: Exploring International Options
For those seeking more affordable retirement options, retiring abroad has become an increasingly popular choice. Especially with the popularity of air travel, ability to communicate with loved ones electronically, ability to work and make money remotely, and an increasingly globalized world and culture, it has become easier than ever to live out your golden years in a foreign land far away. Some popular destinations for American retirees in recent years have included Mexico, Vietnam, and The Philippines.
- Mexico: Approximately 1.6 million Americans reside in Mexico, attracted by lower living costs, affordable healthcare, and proximity to the U.S. Between 2019 and 2022 the number of Americans living in Mexico has jumped nearly 70%. It has the largest number of any country in the world of American expats having over double the number of the next country on the list, Canada.
- Philippines: The cost of living is significantly lower than in the U.S., making it an attractive destination for retirees. Many of the residents also speak English and its former status as a U.S. territory means there is a heavy presence of American culture and cuisine in the island nation already.
- Vietnam: Vietnam is an extremely welcoming culture towards foreigners and their low costs and delicious cuisine have attracted many U.S. retirees.
However, it’s crucial to consider factors like visa requirements, healthcare eligibility, and potential tax implications when planning to retire abroad. Sometimes the grass is only greener when you’re squinting at a distance.
Historical Perspective: Rising Retirement Costs
Over the years, the amount needed for a comfortable retirement has steadily increased. Factors contributing to this rise include inflation, longer life expectancies, and escalating healthcare costs. The sooner you begin saving for retirement, the easier it will be to reach that magic number. For example, a 20 year old would only have to begin saving around $330 a month to hit the goal. As you can see from the table below, how much you need to save each month is vastly dependent on when you start saving.
| Age You Begin Saving | 20 | 30 | 40 | 50 | 65 |
| Monthly Avg. Savings | $330/month | $695/month | $1,547/month | $3,598/month | $1.26 million |
Practical Tips for Retirement Planning
- Start Early: The earlier you begin saving, the more time your investments have to grow.
- Diversify Investments: Spread your investments across various asset classes to mitigate risks.
- Monitor Expenses: Regularly review your spending habits and adjust as necessary to stay on track.
- Consult Professionals: Engage with financial advisors to tailor a retirement plan suited to your goals.
- Stay Informed: Keep abreast of changes in tax laws, healthcare policies, and market trends that could impact your retirement.
Determining how much money you need to retire comfortably involves careful consideration of various factors, including your desired lifestyle, location, and financial goals. By understanding the current retirement landscape, utilizing tools like the 4% rule, and staying proactive in your planning, you can set the stage for a fulfilling and financially secure retirement.
Remember, while the journey to retirement may seem daunting, with the right planning and mindset, you can look forward to enjoying your golden years with peace of mind – and perhaps a well-earned piña colada in hand.