To live comfortably in retirement after you stop working, how much money do you really need? This is one of the most important questions you’ll ever ask yourself. The answer is changing in 2025 due to shifting inflation patterns, cost-of-living changes, and uncertainty surrounding income sources such as Social Security.
In surveys, Americans now say they need about $1.26 million to retire comfortably, down from $1.46 million a year ago.
However, that number is just a starting point, as your “enough” will greatly vary based on where you live, your lifestyle expectations, your health, and how inflation affects your spending.
That said, let’s walk through what’s going on, why these numbers matter, and how to convert them into a realistic retirement goal.
The Big Picture: What the Data Is Saying
A couple of things stand out for 2025, according to the latest research:
Survey target down, but still high.
According to Northwestern Mutual’s 2025 Planning & Progress Study, the average “magic number” for retiring comfortably is $1.26 million, down about $200,000 from 2024.
On the surface, that sounds good. If you dig deeper, though, you’ll find caveats: most Americans haven’t saved anywhere near that much. In general, more than half of the respondents believe it’s somewhat or very likely that they will outlive their savings.
Inflation and the cost of living remain major risks.
Although inflation has moderated since the pandemic peak, it still poses a serious threat to retirement based on assumptions from previous decades. As an example, retirees’ benefits have been adjusted by just a 2.5% COLA in 2025 — it will increase to 2.8% in 2026. While this is happening, healthcare, housing, and service costs are increasing much faster.
In other words, yes, the headline number is lower — but that doesn’t mean retirement funding is easier. In fact, it suggests you need to reevaluate the assumptions underlying your plan.
Why That $1.26 Million “Magic Number” Can Be Misleading
This number is useful because it provides a benchmark. However, it fails to tell you:
- It’s a nationwide average. It does not take regional differences into account. Your number may need to be significantly higher if you live in a high-cost state or metro area.
- It assumes a “typical” lifestyle. Depending on your actual spending patterns, retirement age, health-care needs, and longevity, the required amount may vary.
- It doesn’t guarantee income stability. Having $1.26 million saved does not solve inflation risk, market drawdowns, long-term care, or the possibility of lower Social Security benefits.
While some people might relax because the number dropped from $1.46 M to $1.26 M, this was largely driven by optimism and mild inflation, not by a structural drop in the cost of living.
In short? Treat it as a reference, not a rule.
Key Cost Trends to Factor In for 2025
If you’re calculating retirement savings, you’ll need to factor in some costs and inflation trends.
- COLA for Social Security and fixed-income sources. Social Security and SSI benefits will increase by 2.5% in 2025. Likely, your retirement plan won’t keep up with real cost increases if it’s heavily based on fixed incomes or defined benefits.
- Inflation and spending pressures. Despite lower headline inflation, retirees continue to face higher prices in areas such as healthcare and housing.
- Retirement account contribution and tax limits. As inflation rises, the IRS and other agencies are raising limits, e.g., 401(k) contribution limits and pension plan caps. While these don’t directly affect your retirement savings, they affect how much you can contribute.
- Retirement age and income timing changes. For certain birth years, the full retirement age for Social Security eligibility will shift slightly in 2025. If you delay retirement by even a few years or draw income later, you may need a very different amount of money.
The takeaway? To make your plan work, you must assume moderate inflation, realistic income sources, and conservative spending levels.
From “Millions” to Your Number: How to Estimate What You Need
Here’s how you can use the data to create a personalized retirement target in three easy steps.
Estimate your annual retirement spending.
You should estimate your annual retirement expenses. The most common starting point for advisors is 70-80% of pre-retirement income, assuming you currently earn $80,000/year. However, make sure you adjust for your lifestyle, health, or travel plans.
Choose your time horizon and inflation assumption.
Suppose you retire at 65 and live to 90. That’s 25 years. Assuming 3% inflation, you’ll need more than $60K by year one, since $60K will likely equal $82K in 20 years. To capture your entire retirement span, apply the same logic backward.
Apply a safe withdrawal or accumulation rule.
Many planners suggest that because inflation and bond yields are lower in 2025, more conservative rates should be considered rather than the old “4% rule.” Consider withdrawing 3.5% or 4.5% of your savings annually, or save enough to meet that criteria.
As an example, assume inflation will increase $60K/year spending in today’s dollars to $80K/year in 20 years. Using a 3.5% safe withdrawal rate, you’d need $2,3 million in savings at retirement. If your assumptions are different, adjust the number accordingly.
What This Means for Pre-Retirees & Mid-Career Savers
You can apply the same logic in reverse if you’re still saving rather than withdrawing:
- Start earlier. The longer you save, the more inflation and compound growth will work in your favor.
- Anticipate rising costs. By neglecting inflation, you risk underfunding your target.
- Plan for flexibility. Build an emergency fund since your retirement spending might not be static — health costs, travel, and caregiving expenses may fluctuate.
- Save for contingencies. Whether it’s inflation risk, market risk, or longevity risk, you must include a margin of safety in any calculation.
- Stay updated. All these things change over time, including cost-of-living adjustments, tax policy changes, and retirement rules. As such, in five years, the “enough” number might need to be updated.
Common Mistakes That Make the “Enough” Number Too Optimistic
- Assuming zero inflation or perfect income growth. Rarely is that the case.
- Using average cost numbers instead of your specific geography and desired lifestyle.
- Ignoring the sequence of returns risk. If markets drop early after retirement, your portfolio may take longer to recover.
- Relying too heavily on Social Security or pension income. Although these sources are essential, they are not immune to policy changes or cost increases.
- Assuming you’ll “just cut back” if things go wrong. Technically, that’s possible, but relying on it weakens your strategy.
The Bottom Line: Start With a Realistic Target—and Update Regularly
For many Americans who plan to retire around age 65 with a moderate lifestyle, saving between $1.2 million and $1.5 million is a reasonable goal. Based on your personal situation, your actual retirement number may differ significantly from the national average of $1.26 million.
More importantly, treat your target like a living number. As long as cost-of-living pressures continue, today’s “enough” may no longer suffice a decade from now.
Using your current budget, adjust for inflation, incorporate safe withdrawal rates, and plan for contingencies. After that, make regular updates to assumptions, ideally every 1-2 years.
Retirement isn’t a one-time achievement — it’s a lifetime commitment. In the long run, you’ll be able to enjoy more freedom if you think better now than you did yesterday.
Image Credit: Kampus Production; Pexels
