How Much Money Do You Really Need to Retire? Why $1.27 Million May Be the Wrong Number

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Americans believe they need one point two seven million dollars to retire comfortably one million two hundred and seventy thousand dollars just to retire comfortably that’s what some new research has come out and said and we’re going to talk about that today because well Tony sure welcome to the show what do you think of that you know what I think you probably know what I think of this but what do you think of that 1.2 million dollars to retire comfortably well when I first saw the title of the show Dan I thought well is

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Dan saying that he thinks that you need exactly 1.27 million to retire comfortably because that goes against uh everything you’ve said in the past and I don’t I don’t understand how one number could fit everyone that’s crazy and if that’s true I might need you to um I might need to take uh get you to give me a loan well it turns out um this and now I’ll put the link below for those watching on YouTube but this is the planning and progress study 2023 from Northwestern Mutual okay and I read this and I’m

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going to share my screen because there are some more detail to this but the average American believed they need 1.27 million and it’s interesting to note that it depends also on what area uh what age you’re in as how much you think you need Tony before I share the screen and before I show the viewers what age do you think the they wouldn’t think they need the most if they asked a bunch of people different Generations which generation felt they need the highest amount to retire comfortably

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um probably millennials right I’m going to share my screen you’re wrong uh Gen X me yes yeah I almost said Gen X and then I’m like I because that’s the way I feel but then I’m like oh it’s probably a trick question I better say Millennials well all the here on this chart can you see this chart Tony the oh yeah the amount expected to be needed for retirement is 1.27 million on average those in their 50s which is Gen X that’s us that’s 1965 through 1980 I believe

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um if you were born in that time you are um thinking you need more so look at the and you know why that is Dan you tell me I will tell you because of all those age groups right now the people I know in their 20s 30s 40s and then in their 60s and 70s those of us who are in our 50s are smarter than uh the rest of those age groups so we know uh we know better than they do on what we we’re the realists we’re like no it’s gonna take a lot more than people think I think uh we’re the ones

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with that knowledge right now I’m gonna no I and what’s interesting as you get closer to retirement you realize you need less if you see they think they need less but they still close to a million dollars right but here’s the problem with all this Tony I don’t know if you saw it on there I’ll show it again but I’ll put the stat up here the average amount that the U.S adults have save for retirement is 89 000. which is up three percent from last year so that is if I did my math correctly seven

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percent of what you need so the average American has seven percent of what they need to retire in savings or at least what they believe which might not be bad for a 20 year old but for someone in their 50s um what is going on here well I I’ll tell you what’s going on Dan they didn’t start working with a financial advisor soon enough they didn’t start saving soon enough and they’re not making wise decisions with their money that’s and that’s standard industry talk right and again

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we did this last time uh the last week’s show was a study that we found when you said Tina Fey did but um if you didn’t watch that I’ll put it back up here that’s right it was done by an investment manager yeah and I said you got to be careful because Northwestern Mutual is a financial company so they’re collecting this data because they’re trying to figure out what people think they need but again you’re saying they don’t have enough I’m saying how do you know and

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I think what the problem is where are these people getting this number from who says over I need 1.2 million like on average right like there are obviously some people saying they need a lot more than that but um how can you say you need 1.2 million if all you have is 80 000 saved are you just giving up at that point are you just being realistic or is your top number what you think you need a little aggressive so I’m going to come up with four disconnects here Tony to talk about what I think is going on

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with this not to disparage or take away from this survey question because I think it’s a useful question oh yeah for sure disconnect here and I want to go through it and I think this is really important for people who want to retire they need to figure am I disconnected and why so the first disconnect is people don’t realize the power of Social Security or for the younger people they just don’t have faith in it so the Millennials or the people in their 20s might say it’s not that’s for old

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people and that’s not for me and that’s not going to be around right it’s going to go bankrupt in 2035. but the people that are closer to Social Security they still don’t really people in their 50s don’t realize okay I need 1.2 million why you’re going to get income from Social Security most likely are you factoring in that how much is that worth if you if you did like a cash flow analysis and said you know present value of those future cash flows could be worth a million dollars right so is I think what

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people are failing to remember is that Social Security is there for retirement purposes a lot of people take it early and they’re discounting and they’re getting less and so they’re hurting themselves in the long run for retirement but um when you’re asked how much you think you need you should be thinking how much income do I need right we’ve done so many shows on that yeah you know how much do I need a 50 you know five and I reiterate you and you knew what you called me out on in the beginning

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it’s not how much money is lump sum you need is how much income you need and so when you’re not and when you need it it’s more about when you need it and how much you need along the way versus the lump sum obviously it’s going to help if you have a billion dollars in your lump sum it’s going to take away a lot of the concerns but uh for the average a person and for you and I uh it’s more about where is my income going to come from what are the sources and how much do I need each month right

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right and they forget Social Security’s gonna be part of that how what percentage it’s gonna be different from different people depends on what you need but when you’re saying I need 1.2 million are you thinking oh well I’m going to get 40 000 a year from Social Security so maybe I don’t need 1.2 million so that’s disconnect number one number two people have no idea how to create retirement plans they just don’t that’s why I said at the beginning the solution

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is you that’s what right here this is the reason why not to plug your business uh or just you know not to be on the side of financial advisors but I don’t know how to take a lump sum an average person my wife and I didn’t know how to take our IRAs and 401ks and turn them into uh retirement income uh monthly income that would we know will last us that is the trick isn’t it right and so because you don’t know how to do that you just pull a number out of the air really right because and what a lot

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of people do is they say the four percent rule okay if I need if I have a million dollars and I get four percent a year I’m getting 40 000. okay is that enough to live no well then I don’t need a million 92 million because I need 80 000. and that’s how people think but that’s you shouldn’t think that way you should be thinking well how much income do I need and then where it’s going to come from let’s with Social Security do I have a pension do I have and build it that way and people just

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don’t know how to do that and that’s my job so that’s a huge disconnect and why people are throwing these ridiculously high numbers out and I’m saying they’re high I don’t think people need that again it depends on where you are in life maybe you want because 1.2 million today is not the same as 1.2 million 20 years from now true you know yeah it depends on your time Horizon and the lifestyle you’re accustomed to right so that’s a big issue we did a show on it last week so watch that if

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you want to you know and I’ll put I’ll put another show up here on how to build an income plan I mean on the Seven Keys okay disconnect number three people don’t value their home they forget about this we’ve taught how many times have I said this it’s the biggest asset for many people and they’re forgetting the equity in their home as an example I recently had a client a new client come to me and say this is what I got this is all I have I need this to last my life I need to generate

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income from it and so when we’re looking at it starts you know I start showing different trajectories and say it’s going to generate you know 1500 a month but you’re going to run out of money at age 80. is that a problem absolutely it’s a problem I’m gonna and then tears literally I I can’t do this I thought I was gonna be retired I don’t have enough I said your house is worth five hundred thousand dollars and you owe zero on it are you just gonna die with that house do you have no children

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no one no one to leave anything to you what are you gonna do with that house well I don’t know I’m living there I need it well there’s Equity there that’s another five hundred thousand dollars that you can actually use on yourself for your life you could do a reverse mortgage or you could take a loan out or what or you could downsize and use the difference in equity to live and then when we just show I think it was like we took a hundred thousand out of the house in some way I don’t even know what way that

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that’s not you know that’s down the road all of a sudden the plan goes out to well past 90 and it’s like oh people forget about that asset and they think yeah oh you know they only think about what’s invested in what’s in the bank they don’t think about the home and the value because that’s a huge savings account if you think about it I’m not telling people that reverse mortgage is the way to go don’t get me wrong I’m just saying most people just don’t

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understand how to use that well first of all Dan first of all when you bring up reverse mortgage you don’t have the mustache for it so you can’t tell people about reverse mortgages I entered a trivia contest with some friends a couple weeks ago and I named the team much to the Chagrin of my wife and some of my friends Tom Selleck’s Tom Selleck’s mustache I shortened it from Tom selects glorious mustache oh the Glorious oh you got to have the I don’t know if I like that you got to have the Glorious in there

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for my retirement account that was supposed to be our reward for all the years of responsibility yeah see and a lot of people are adding to their home and not thinking about it they’re paying off the mortgage but savings right and so not only does the mortgage go away when there’s nothing old so your income need goes down but you have saved forced Savings in the value of the home okay so and last but not least the fourth disconnect is and this is probably where and I was alluding to it earlier is the idea of

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okay four percent rule I mean it’s fine that’s a good rule right but what people are failing to remember is that the four percent rule is in in the minds of people is they’re gonna get four percent from that investment and not touch the investment not touch the principal right so if you have 1.2 1.27 million in the bank and you’re getting four percent you’re getting fifty thousand or whatever that comes out to a year and you’re like oh I can live off of that oh no I need I need seventy thousand so I

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need two million what you’re failing to remember is that just because it’s generating that money it doesn’t mean you can’t touch the principle and draw it down you can’t you know you don’t have to leave the whole bucket there and only live off of interest you could take principle if you do that wisely the goal for many of my clients is not to die with a 1.27 million in the bank the goal is to die with nothing for a lot of people I mean some people have a legacy and that’s a different discussion

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but quite frankly a lot of people are like you know I didn’t get anything from my parents and I’m okay I don’t need to leave something for my kids so I’m not gonna live in fear or be destitute or live in poverty just so that my kids can inherit a huge amount of money so you so what people think I need 1.27 million maybe you only need 500 000. but at the end when you’re in your 80s 90s maybe you won’t have a lot of income you won’t have a lot of assets I should say is

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that okay probably for most yeah and then there’s always the house right and then the people then it goes back to number three is like they’re gonna get the house right that’s right oh yeah I forgot about that yeah they’re gonna they’ll be okay and no they don’t want your house they’re probably gonna sell it so yeah exactly that’s the problem right so I mean this idea of needing a large pool of money to generate the income you need makes sense to people and that’s why I think it’s so inflated

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it’s because they just think oh I’m not going to touch this money it’s just going to grow and I’m going to live off the interest which is great it’s a great way to plan but it’s unrealistic for a lot of people look we have seven percent of what we think we need already saved that’s we’re going to be short so you’re gonna have to come up with Plan B which is yeah I’m gonna have to reduce my income um or figure out a new way to Envision retirement Okay so

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conclusion they just I think people have overesteemed my enemy overestimating the amount they need they just they’re doing it the wrong way they’re just trying to come up with a number that sounds great you know you’re looking at the Powerball winner making 500 million yeah after tax and you’re like oh yeah that sounds good um you know the million dollar used to be a big thing When We Were Young right oh the millionaire now it’s like yeah that’s just table Stakes I think

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it’s just that taking it the wrong way you need to start with what you need for income work your way backwards shouldn’t be backwards that’s the way to do it but think of it backwards from traditional way and then figure out all right if I need 80 000 a year how much do I need saved in order to generate that income and don’t forget about social security don’t forget about your home and don’t think that you have to die with whatever you saved your goal for many people should be that

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last check to bounce yeah what do you think Tony so how much do you need to retire yeah it depends um how much do you need to retire Tony desire spotlight’s on you the survey person from uh Northwestern Mutual comes up to you and says Tony how much do you think you need to retire what are you gonna do what would you how would you answer that question to be in part I would say a lot or it depends I don’t think there’s a specific number right now so you’re so when the when the political polls come out and they say

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Which presidential candidate are you going to vote for you’re gonna be the guy that says undecided but all the way up to the last day right that’s you yeah so you are just people who say they’re undecided are usually lying they know who they’re going to vote for they just don’t want to commit to it publicly and I think when people are asked this question on a survey how much do you think you need and it’s just like a dollar amount people just kind of throw things whatever right whatever sounds

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good yeah it’s you’re not gonna get a write-in that says well I first have to determine how much income I need then subtract Social Security and then do a reverse you know how much I can generate from that and figure out how long I’m going to live and all the things that it takes to answer that question wisely they’re not doing that and that’s why I think it’s a little Sensational it’s a little bit of a headline and again yeah here’s the stuff in the words of a doctor evil one

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million dollars exactly so maybe 20 years from now we’ll laugh at this and say at one point I wish I at 1.2 million that’ll get you that’ll get you a little uh Log Cabin In The Middle With inflation from 2022. uh that’s gonna Jack that number up a bit okay indeed it will so again don’t be disheartened when you say oh my goodness I only have 10 saved from what I’m supposed to have saved you don’t know what you have saved relative to what you need until you figure out what you need

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don’t just take these blanket numbers as gospel because they’re definitely not and our listeners out there and viewers though Dan are saying okay how do I figure out exactly what I need then isn’t that important and yes it is we’re not you’re not saying that’s not important in fact that’s exactly what you do for your clients and the people you meet with is help them figure out exactly what they’re going to need in retirement based on their personal goals and situations and so I want to

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reiterate that to our listeners and viewers uh you got to plug it here because I think that is important and I know I know you love talking to people about this stuff so I’m encouraging people who are listening or viewing to give you a call and set up a consultation and get a plan in place or get a second opinion on where you’re at uh before you retire uh hopefully and there’s two main benefits of doing that number one you’ll be able to answer the survey question if anyone asks you

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correctly right and two you’re going to eliminate a lot of fear and because the unknown is what’s causing the fear and so the fear of living outliving your money the fear of not having enough it freezes people so by being able to answer the question going through the process you’ll feel empowered to retire early later who knows but you won’t have that fear of unknown because it won’t be unknown anymore so yeah don’t pay attention to those headline numbers of 1.27 million because it’s

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definitely not accurate from my perspective Tony thanks for a good show I’ll see everyone next week all matters discussed in today’s show are for informational purposes only this show is not an investment advice the animal nor Dolphin Financial Group are affiliated or endorsed by any government agency investment advisory services are offered through Dolphin Wealth Management Inc a registered investment advisor in the State of Florida Insurance products and services are offered through Dolphin Insurance Inc

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Dolphin Wealth Management Inc and Dolphin Insurance Inc are affiliate companies doing businesses as Dolphin Financial Group you should talk to someone at Dolphin Financial Group before implementing any of these strategies or ideas