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\n brizmaker \/ iStock.com <\/p>\n
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GOBankingRates’ editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines<\/a> and our products and services review methodology<\/a>.<\/p>\n 20 Years<\/strong> Trusted by<\/strong> There\u2019s a major gap between how much Americans they\u2019ll need for retirement<\/a> and how much they\u2019ve actually saved. <\/p>\n According to the Northwestern Mutual 2025 Planning & Progress Study<\/a>, for example, Americans say they\u2019ll need $1.26 million to retire comfortably. But Kiplinger<\/a> said the median net worth at age 65 in America is just about $400,000. <\/p>\n Yet, while this gap is often referred to as \u201cAmerica\u2019s retirement crisis,\u201d many retirees enjoy quite happy retirements with far less than $1 million. So, how do they do it<\/a>?<\/p>\n Retirement Spending Decreases Over Time<\/p>\n What\u2019s often overlooked in financial projections is that expenses actually tend to drop over time throughout retirement. <\/p>\n<\/p>\n Most calculators plug in an inflation rate for projections \u2014 3% often being the case \u2014 and simply mark up expenses every year accordingly. But the reality is that as retirees get older, they tend to spend less money on things like eating out, travel and transportation in general, instead spending more time at home.\u00a0<\/p>\n Data from the Bureau of Labor Statistics<\/a> shows that from ages 55 to 64 to 75 and up, average household spending drops from $83,379 to $53,031. That\u2019s a dramatic 36% drop in annual spending. While healthcare costs<\/a> do rise over time, overall spending more than offsets this increase.\u00a0<\/p>\n For many Americans, this is the key to extending their nest eggs in retirement. The math works out a lot better when expenses are dropping by 36% over time instead of steadily increasing by 3% every year.<\/p>\n The 4% Withdrawal Rule Works<\/p>\n In 1994, financial planner William Bengen came up with the \u201c4% rule\u201d for retirement withdrawals, suggesting that was an acceptable rate to ensure that funds could last for at least 30 years. <\/p>\n Of course, there\u2019s more to the model than just the 4% withdrawal rate, according to CNBC<\/a>. That rate was meant to be modified over time, used with a 60\/40 balanced investment portfolio, rebalanced annually, and held in a tax-advantaged account. In fact, in 2025, Bengen bumped up his \u201csafe\u201d withdrawal rate<\/a> in the first year of retirement to 4.7%. Regardless of the specifics, that\u2019s likely how the $1 million nest egg idea got its start.\u00a0<\/p>\n<\/p>\n A 4% withdrawal from a $1 million portfolio, for example, would translate to $40,000 in income in the first year. With the average Social Security retiree payout reaching $2,006.69, that\u2019s another $24,080 annually. For a married couple, each earning the average Social Security amount, that\u2019s a total income, including the 4% withdrawal, of over $88,000 annually.\u00a0<\/p>\n As seen above, the BLS data shows that even in pre-retirement, average annual household expenditures only reach $83,379 and decline over time. The 4% model shows that a $1 million nest egg is more than sufficient to cover average household expenses during those years, and well over what\u2019s needed for the average 75-year-old. That\u2019s why many retirees can survive on a much smaller retirement account balance.\u00a0<\/p>\n Downsizing and Geographic Arbitrage Can Save Money<\/p>\n One way for retirees to ensure their spending doesn\u2019t exceed their income is to change their residence. In some cases, this means downsizing from a large home<\/a> to a small one. In others, it might mean moving to a more affordable city, state or even country. Using either strategy, retirees can maintain their same standard of living without actually spending as much money.\u00a0<\/p>\n A one- or two-bedroom house, for example, will have a smaller mortgage and lower maintenance costs than a four- or five-bedroom one. If you\u2019ve already paid off your home, that\u2019s even better. Downsizing will allow you to access some of your home equity, giving you a larger nest egg to live off.<\/p>\n<\/p>\n Moving from a high-cost state like California or Hawaii to a more affordable option like Arkansas, Iowa or Alabama can also trim your costs dramatically. If you\u2019re a bit more adventurous, there are plenty of lower-cost countries, like the Philippines, Portugal and Costa Rica, where your money can last a lot longer.\u00a0<\/p>\n The Bottom Line<\/p>\n There\u2019s nothing wrong with striving for a $1 million nest egg. But you shouldn\u2019t feel as if you have no options for a happy retirement if you don\u2019t reach that lofty seven-figure goal. The BLS data shows that for the average American household, $1 million in assets, when combined with Social Security income, is more than enough to live comfortably<\/a>. In fact, most retirees live on much less. <\/p>\n The key to a happy retirement is to plan ahead, be adaptable and make the right lifestyle choices that allow you to match your income and expenses, however high or low they may be.<\/p>\n","protected":false},"excerpt":{"rendered":"brizmaker \/ iStock.com Commitment to Our Readers GOBankingRates’ editorial team is committed to bringing you unbiased reviews and…\n","protected":false},"author":3,"featured_media":328236,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[64,8726,255,615,700,67,132,68],"class_list":{"0":"post-328235","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-gobankingrates","10":"tag-personal-finance","11":"tag-planning","12":"tag-retirement","13":"tag-united-states","14":"tag-unitedstates","15":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115427275563529858","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/328235","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=328235"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/328235\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/328236"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=328235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=328235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=328235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/cdn.gobankingrates.com\/wp-content\/uploads\/2023\/11\/icon-20.svg?webp=1&quality=75\"){kind=icon}
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