Do you know how much you need to retire comfortably? That amount, your “magic number,” is not a fixed standard but rather a value that fluctuates due to several personal factors. It is different for everyone.
Northwestern Mutual’s latest Planning & Progress Study found that in 2025, Americans, on average, believe they will need $1.26 million saved to retire comfortably.
For many Americans, the idea of reaching the “just” $1.26 million needed to comfortably retire sounds impossible. But here is the twist: Last year, the average “magic number” people thought they needed was $1.46 million. In one year, that target shrank by $200,000.
Why the sudden drop? Shifting economic conditions and personal expectations are at play. Here are some highlights from the study:
- Inflation fears eased: Inflation is still a top concern, but less so than last year. In 2024, Americans felt the previous year’s worth of rising prices and braced for much higher retirement costs. Now that inflation has cooled markedly (around three percent in 2024, down from about six percent in 2023), people are less fearful about future expenses. Inflation is not as elevated now, so Americans have adjusted their perceptions of what they will need.
- Reset expectations: Many people have rethought what “comfortable retirement” means. The economic upheavals of recent years prompted folks to reassess their plans. Some decided to trim their retirement budgets or pursue a simpler lifestyle, and others figured they might work part-time in retirement. If last year’s higher number was driven by fear, this year’s lower number is driven by a return to realism. The survey emphasized that retirement planning is personal, and everyone’s “magic number” will differ.
- Generational mindset shift: The mix of survey respondents is changing. Millennials and Generation Z now make up a large share of working-age adults, and they tend to be more optimistic and proactive about saving than older generations. Younger generations are saving earlier and expecting to retire sooner. On average, Gen. Z started saving at age 24 and aims to retire by 61, whereas Baby Boomers started around 37 and plan to retire at 72. Meanwhile, many Gen. Xers and Baby Boomers, being closer to retirement, feel behind on savings and, in prior surveys, cited higher “needed” amounts. As younger voices influence the average, the overall “magic number” has come down.
Remember that $1.26 million is just an average benchmark, not a rule for everyone. Your personal “magic number” could be very different. Factors like where you live, your health, your desired lifestyle, and whether you will have other income (Social Security, pension, etc.) all influence how much you will need. Yes, the drop in the overall “magic number” is interesting, but what matters most is tailoring a plan to your own needs.
From insight to action: Strengthening your retirement plan
Seeing the national “magic number” decline might feel like relief, but it is not a signal to relax. If anything, it is a reminder to plan smartly to reach your number (whatever it may be). The positive trends—cooling inflation and better market conditions—create a window of opportunity to strengthen (or start) your retirement strategy.
- Start early and save consistently: Time is the most powerful tool for building wealth. Thanks to compounding, money invested in your youth has decades to grow. For example, a person in their 20s would only have to invest $330 per month to reach $1.26 million by age 65. In comparison, starting at 50 requires nearly $4,000 per month.If you are closer to retirement and behind on savings, the next best time to start is now—contribute as much as you can going forward. (You also have to consider the investment and the account types, but, for now, I want to emphasize the urgency of preparing for retirement.)
- Balance growth with protection: Invest for growth but also protect your nest egg. Northwestern Mutual, which, like Berkshire Money Management, can sell insurance (note the conflict of interest), says to have insurance to shield you from worst-case scenarios. Health insurance (and later Medicare and possibly long-term-care coverage) will prevent medical bills from devouring your savings. (A warning, there is a saying that “insurance is sold, not bought.” Be careful that an insurance agent doesn’t try to oversell you. It is prudent to consider the recommendations of a financial-planning engine, like the output of Money Guide Pro or eMoney before purchasing.)
- Diversify your retirement income: Plan to have multiple income streams in retirement. Besides Social Security, consider income from your savings, like IRA withdrawals and trust account distributions. You can create income through dividends, interest, or tactical selling within those investment accounts. A mixture of income streams gives you more stability than relying on a single source.
- Optimize Social Security: Social Security is a reliable, inflation-adjusted income stream for life, so make the most of it. Some lazily advise waiting as long as possible to claim benefits. While delaying Social Security benefits can significantly boost your monthly payments, simply waiting until age 70 is not always the best move for every investor. There are specialized calculators that can do better for you.
- You could instead embrace Social Security optimization, a strategy focused on maximizing lifetime benefits based on individual life expectancy, financial circumstances, and family situations. Proper planning can be more precise about the claiming age that would most benefit a recipient by analyzing factors such as break-even age, spousal benefits, survivor benefits, and tax implications. For example, someone with health concerns or shorter family longevity might find it advantageous to claim earlier, while couples may coordinate benefits to maximize total household income.
- Adjust investments as you age: Your asset mix might need to get more conservative as you approach retirement, but do not abandon growth entirely. If you are not going to run out of money in retirement and intend to bequeath the assets, your effective investment horizon could be decades beyond your life expectancy. Shift gradually toward more bonds or buffer funds to protect what you have saved, but keep an allocation of equities, even in retirement, to outrun inflation.
Your personal ‘magic number’
The “magic number” concept is helpful as a benchmark, but it is not one-size-fits-all. The drop to $1.26 million is a sign of the times, reflecting lower inflation and a bit more optimism, but do not let that dictate your plans. Stay focused on your own retirement target, and adjust your strategy as needed.
The specialized financial-planning calculators I referenced (Money Guide Pro, eMoney) are a way to turn a process and an art (answering the question, “How much do I need to retire?”) into as much of a science as possible (at least in the far-from-guaranteed world of investing). Part of that science is determining your personal “magic number,” not just a number manifested out of thin air because it felt right.
A complete financial plan helps you review your retirement readiness by addressing your burning questions, including how much you have saved so far and how that compares with what you might need in the future. Your plan should account for inflation, healthcare costs, tax implications, and longer life expectancy.
With diligent planning and smart investing, you can pursue a comfortable, secure retirement—whatever your personal “magic number” may be.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
