Retirement: How Much is Enough?

WSJ illustration

Seventeen (17) years ago I did a quick-and-dirty estimate of the nest egg required for us to have a "sleep-well" retirement. The answer: $2 million.

We can spend a lot more time fine tuning the calculation to include taxes, Social Security, lumpy expenditures such as medical care, cruises, and cars, and whether the savings are in tax-deferred or taxable accounts, but the extra precision won’t change the final number much. Am I there yet? Let's put it this way, I've got to keep working for a while---there are a few more years of mortgage and college payments--but I'm sleeping well, too.

In the intervening years we've been lucky. The performance of the stock market has kept our savings above $2 million, and we have paid off the mortgage. On the other hand, inflation has rocketed past the 3% used in my old calculations, and doesn't appear to be dampening anytime soon. The upshot: retiring in the SF Bay Area now requires more than $2 million to have sleep-well golden years (remember this is my personal opinion!), but that amount seems more than enough in other parts of the country.

A recent survey places the subjective target at $1.46 million.

It would take $1.46 million to retire comfortably, according to a recent survey of 4,588 adults released Tuesday by financial-services company Northwestern Mutual. That is up from $1.27 million a year ago. And over $1 million more than the average survey participant’s nest egg.

The rising magic number reveals more about retirement anxiety than retirement planning, said Teresa Ghilarducci, an economist at the New School for Social Research in New York City.

Money isn't the only way to buy retirement happiness, of course. Having trusted friends and family members--preferably younger--helps, as does living in a safe community with ample medical services. If through planning, skill, and luck you have all that, you're living the true American dream.