💰The Retirement Number Myth - Why $1 Million Isn't What It Used to Be

Remember when $1 million was the magic retirement number?

Author

Jason Paloma
November 23, 2025 • Estimated Reading Time: 18 minutes

😎 Market Vibes

💰 The Retirement Number Myth - Why $1 Million Isn't What It Used to Be

Remember when $1 million was the magic retirement number? When achieving seven figures meant you'd made it, you could coast into your golden years sipping piña coladas on a beach somewhere, and money would never be a concern again?

Yeah, about that.

Plot twist: At 6% inflation, $1 million today will be worth only about $310,000 in 20 years. That's not a typo. Your million-dollar nest egg has the purchasing power of a 2005 Honda Civic by the time you're deep into retirement.

Welcome to the uncomfortable math of inflation, longer lifespans, and healthcare costs that make your eyes water. Let's talk about why that magical seven-figure number might need a serious reality check - and what the numbers actually look like when you stop using 1994's calculator.

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💰 The Million-Dollar Illusion - What That Number Actually Buys You

Let's start with some party-killing math. According to Northwestern Mutual's 2025 Planning and Progress Study, the consensus among 4,626 people polled is that you need closer to $1.26 million to retire comfortably, not $1 million. That's already 26% higher than the nice round number everyone quotes.

But wait, there's more disappointment! Average spending for those age 65 and older was roughly $60,087 in 2023, according to government data. Now apply the famous "4% rule" - you know, that guideline suggesting you can withdraw 4% of your portfolio annually and not run out of money for 30 years.

Four percent of $1 million is $40,000. Which means your million-dollar retirement fund generates $40,000 per year while average retirees are spending $60,000. That's a $20,000 annual gap, which you'll need to fill with Social Security, a pension, or - more realistically - watching your principal slowly evaporate like water in the desert.

"But inflation was low for years!" you might say. Cool story. After years of near-zero inflation, prices for many products have skyrocketed in recent years, and that's something retirees need to take into account as they manage their money. A rising inflation rate erodes purchasing power and results in retirees burning through their savings faster than a teenager with their first credit card.

Here's where it gets really fun: If your current income is $50,000 per year and you assume a 4% inflation figure, in 30 years you would need the equivalent of $162,170 to maintain the same standard of living. That's more than triple. Your dollar today buys what 31 cents will buy in three decades.

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📉 The 4% Rule Just Got Messier (And Maybe Lower)

Speaking of the 4% rule, let's talk about that venerable retirement planning cornerstone that's currently having an identity crisis.

Except now Bengen himself has updated his own rule. In his new book, Bengen says the safe withdrawal rate is actually closer to 4.7% - meaning a retiree with a $1 million portfolio could spend $47,000 instead of $40,000 in the first year. That's based on updated analysis incorporating international stocks and small/mid-cap companies, not just U.S. large-cap stocks and bonds.

But wait - there's disagreement! Morningstar's 2025 research suggests a more cautious 3.7% withdrawal rate as the sweet spot for a 30-year retirement based on projections for future market returns, inflation, and interest rates. That's based on forward-looking assumptions rather than historical returns.

So depending on who you ask, your safe withdrawal rate is somewhere between 3.7% and 4.7%. That's a 27% difference in how much you can spend. No big deal - it's only the difference between affording your lifestyle or eating ramen in your 80s.

Morningstar's estimate declined to 3.7% in 2025 from 4% in 2024, due to long-term assumptions in the financial markets. Expectations for stock, bond, and cash returns over the next 30 years declined relative to last year. Translation: The future looks slightly less rosy than it did 12 months ago.

But here's the kicker that nobody tells you: The 4% rule doesn't include taxes or investment fees, and applies to a "very specific" investment portfolio - a 50-50 stock-bond mix that doesn't change over time. Your actual situation? Probably more complicated than that.

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🩺 Healthcare Costs - The Retirement Budget Killer Nobody Warns You About

If inflation and withdrawal rate debates weren't enough to keep you up at night, let's talk about healthcare costs - the silent assassin of retirement budgets.

Fidelity Investments' 2025 Retiree Health Care Cost Estimate projects that the average 65-year-old can expect to spend $172,500 in after-tax savings to cover health care expenses in retirement, not including long-term care. That number is up nearly 4% from 2024. And remember, that's AFTER you've already paid for Medicare.

"Wait, isn't Medicare supposed to cover healthcare in retirement?" Cute. Let me introduce you to reality.

But wait, there's more! If you're admitted to a hospital in 2025, the deductible is $1,676 for costs incurred during the first 60 days of care. For days 61 through 90, there's a $419 daily coinsurance charge, and then $838 a day for "lifetime reserve days." For skilled nursing facilities, the daily coinsurance cost during days 21 through 100 is $209.50.

And here's the really fun part: Part B premiums have grown 20% faster than inflation over the last 10 years. While general inflation went up 2.9% in 2024, the Part B premium rose 6%. Because healthcare costs aren't tied to general inflation - they're tied to healthcare inflation, which consistently runs hotter than everything else.

The combination of just Medicare premiums and co-pays "eat up about one-third of Social Security income and one-fifth of total income" for middle-income retirees, according to a report from the Center for Retirement Research at Boston College. About one-third of Medicare beneficiaries struggle to afford co-pays and deductibles, and about one in five delay or skip needed health care because of cost.

So let's do the math: Your $1 million retirement fund needs to cover your living expenses ($60,000 annually), adjusted for inflation (which will roughly triple that over 30 years), PLUS healthcare costs ($275,000-$313,000), PLUS any long-term care needs (which we haven't even discussed yet).

Starting to see why $1 million might not be the magic number anymore?

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🃏 The Longevity Wild Card - Living Longer Than Your Money

Here's another complication nobody wants to think about: you might live way longer than you planned.

With medical advances, many people may live 85-95 years, stretching retirement savings. The traditional 30-year retirement planning horizon was designed for someone retiring at 65 and living to 95. But what if you retire at 62? Or live to 100?

20% of Americans over 65 are now reaching age 100, according to the U.S. Centers for Disease Control. If you're 65 today, there's a one-in-five chance you'll see your 100th birthday. That's 35 years of retirement to fund, not 30.

The 4% rule was specifically designed for a 30-year retirement. Extend that timeline, and the math gets shakier. An 8% withdrawal rate already strains portfolios, let alone doubling it, when factoring in 2.5% inflation and lower yields. Even in strong markets, high withdrawals erode compounding and undermine long-term growth.

And here's the really scary part: A bear market or high inflation early in retirement can severely impact the longevity of retirement portfolios, according to Bengen. The sequence-of-returns risk - where you get hit with market losses in your first few retirement years - can be devastating. Even if the market eventually recovers, you've been selling assets at depressed prices to fund your living expenses, permanently reducing your portfolio's ability to generate future returns.

Bengen says inflation is "the greatest enemy of retirees." Higher inflation during retirement can be "scary," requiring larger withdrawals from your portfolio to maintain purchasing power, which increases the risk that you'll outlive your nest egg.

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📐 The Flexibility Factor - Why Rigid Rules Don't Work for Real Life

Here's something the retirement calculators don't tell you: real life doesn't follow a spreadsheet.

One-size-fits-all retirement planning is about as useful as one-size-fits-all pants. They technically work for someone, but probably not you.

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🎬 Bottom Line

So what's the actual retirement number? Plot twist: there isn't one.

The million-dollar retirement number was always a convenient fiction - a nice round figure that felt achievable and substantial. But the reality is far more nuanced, and depends on:

  • When you retire and how long you live

  • Where you live and what your lifestyle costs

  • Healthcare expenses and whether you need long-term care

  • What the market does in your first 5-10 years of retirement

  • Inflation rates over your retirement horizon

  • Whether you have pension or Social Security income

  • How flexible you can be with spending during down markets

Maybe the real question isn't "Is $1 million enough?" Maybe it's "What does enough actually look like for me, given my specific situation, goals, and life expectancy?"

Which is a much harder question to answer, requires more thought than memorizing a single number, and probably means talking to an actual financial professional who can run scenarios based on your actual life instead of a 1994 spreadsheet.

But hey, at least now you know why your parents' retirement math doesn't work for you. Progress!

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