Brett Arends's ROI: Retiring without millions in the bank? It can be done easily.

United States

The other day I saw an online debate about how much you “need” to retire these days. Those in the debate — including several financial planners — were engaged in what I could only guess was a bidding war.

Was $ 2 million enough? No?

How about $ 3 million?

Or $ 4 million? No?

Who are these people, I wondered. If they are planners, who are their clients? And what are they themselves expecting to do in their golden years?

Then my colleague Jessica Hall covered found a new number that came from a Northwestern Mutual survey. They found that the average American says they “need” about $ 1.27 million to retire in comfort. That’s a lot less than the experts debated, so it must be a good thing. But how much does the average American actually have? Just under $ 90,000. That’s not so good.

Read more: The magic number for retirement climbs as most Americans expect to work longer — except Gen Z

What about Americans who have more than $ 1 million? They’re not satisfied either. They think they will “need” $ 3 million.

Who are these people?

A couple who retires at age 70 with $ 1.27 million in savings can purchase an immediate annuity and at current rates guarantee themselves a lifetime income of $ 90,000 a year.

A single 70-year-old retiree with the same amount of money can buy a lifetime income of $ 106,000 a year. Someone with $ 2 million can get nearly $ 150,000 a year for a couple, and nearly $ 170,000 a year for a single person.

And we didn’t even include Social Security.

The average Social Security benefit for a retired worker is about $ 21,000 a year, says the Social Security Administration. The average benefit for retired workers that waits until 70 climbs to $ 33,000. None of those include spousal benefits.

These are only averages; earn more, and up to a point you get more. The maximum benefit for a retired worker that doesn’t claim until turning 70 is $ 55,000 a year. That’s on top of the annuity money.

So just what are they going to spend all that money on? And, more importantly, how much do people actually spend in retirement? That figure is a lot less than many may expect.

Social Security data say the median retired household spends $ 34,000 a year. Only one quarter spends more than $ 54,000, and only 12% more than $ 75,000 a year.

The University of Massachusetts, meanwhile, has calculated the bare minimum we’ll need to keep body and soul together, and retire in comfort and dignity.

It varies a lot from place to place, as you’d expect. But they say the average is about $ 29,000 a year if you’re single and $ 41,000 if you’re a couple. That’s if you don’t own your own home and have to rent.

This figure covers housing, healthcare, transportation, food and miscellaneous essentials.

You can check out their calculations here.

So the average person seems to think they are going to need about $ 130,000 a year in retirement. That’s based on what they’d get from a $ 1.27 million annuity, plus the average Social Security benefit.

That’s quite some retirement.

Of course, they won’t buy annuities, partly because almost nobody does, and partly because they want to leave money to their children. These are choices. Meanwhile, apparently, they actually have $ 90,000 in the bank.

Personally? As long as I am able to put off claiming Social Security until I’m 70, and avoid some medical catastrophe, I won’t need anything like this.

I’m not looking to spend a lot in retirement — least of all on discretionary things. That’s because, like many people who’ve reached maturity, I’ve cracked the basic code of personal finance.

I’ve worked out that trying to maintain happiness by purchasing more and better stuff is a sucker’s game. Economists call it the “hedonic treadmill.” You end up no happier, but a lot poorer.

I also worked out that when it comes to big-ticket items, like massive houses, fancy cars, and second homes, you don’t own them anyway. They own you.

I have retired friends who have a second home. They might as well have stayed working, all the time, money and energy it costs them to keep it up. I’ve known people with huge houses. They lived in four or five rooms, like the rest of us.

Very expensive cars? Your local mechanics will thank you.

Meanwhile, a dog from my local shelter will cost me $ 600. Sure, they also own you — but in a good way.