I Heard You Need $1 Million To Retire — How Do So Many People Survive on Less?
Written by
John Csiszar
Edited by
Zuri Anderson
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There’s a major gap between how much Americans they’ll need for retirement and how much they’ve actually saved.
According to the Northwestern Mutual 2025 Planning & Progress Study, for example, Americans say they’ll need $1.26 million to retire comfortably. But Kiplinger said the median net worth at age 65 in America is just about $400,000.
Yet, while this gap is often referred to as “America’s retirement crisis,” many retirees enjoy quite happy retirements with far less than $1 million. So, how do they do it?
Retirement Spending Decreases Over Time
What’s often overlooked in financial projections is that expenses actually tend to drop over time throughout retirement.
Most calculators plug in an inflation rate for projections — 3% often being the case — 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.
Data from the Bureau of Labor Statistics shows that from ages 55 to 64 to 75 and up, average household spending drops from $83,379 to $53,031. That’s a dramatic 36% drop in annual spending. While healthcare costs do rise over time, overall spending more than offsets this increase.
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.
The 4% Withdrawal Rule Works
In 1994, financial planner William Bengen came up with the “4% rule” for retirement withdrawals, suggesting that was an acceptable rate to ensure that funds could last for at least 30 years.
Of course, there’s more to the model than just the 4% withdrawal rate, according to CNBC. 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 “safe” withdrawal rate in the first year of retirement to 4.7%. Regardless of the specifics, that’s likely how the $1 million nest egg idea got its start.
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’s another $24,080 annually. For a married couple, each earning the average Social Security amount, that’s a total income, including the 4% withdrawal, of over $88,000 annually.
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’s needed for the average 75-year-old. That’s why many retirees can survive on a much smaller retirement account balance.
Downsizing and Geographic Arbitrage Can Save Money
One way for retirees to ensure their spending doesn’t exceed their income is to change their residence. In some cases, this means downsizing from a large home 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.
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’ve already paid off your home, that’s even better. Downsizing will allow you to access some of your home equity, giving you a larger nest egg to live off.
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’re 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.
The Bottom Line
There’s nothing wrong with striving for a $1 million nest egg. But you shouldn’t feel as if you have no options for a happy retirement if you don’t 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. In fact, most retirees live on much less.
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.
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