How Much Retirement Savings Do You Really Need?

That nice round sum of $1 million has long been seen as the magic number for retirement saving. It's a goal that's easy enough to remember and focus on, and it's big enough to guarantee anyone a comfortable retirement. Right?

Well, maybe not. Then again, maybe you could get by with far less. So how much do need to save for retirement? Let's take a look.

$1 million may not be enough

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That $1 million benchmark came from a different era, when life expectancies were shorter and pensions were still a thing. Are there employers who even offer pensions anymore?

Plus, $1 million ain't what it used to be, and it will be worth even less for tomorrow's retirees.

Mark Avallone, president of Potomac Wealth Advisors and author of Countdown to Financial Freedom, told CNBC a 67-year-old could retire today with $1 million and enjoy a $40,000 annual income by withdrawing 4% a year.

But a 42-year-old aiming for $1 million by age 67 could count on just $19,000 a year in retirement, thanks to inflation. A 32-year-old millennial who wants to retire at 67 with $1 million would live below the poverty level.

Related video: Here's how you might be sabotaging your retirement savings (provided by Fortune)

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The 4% rule

So if the save-a-million advice no longer cuts it, how about other longstanding bits of retirement saving advice?

We've already touched on the 4% rule — the idea that you need to have enough money set aside so you could live on 4% withdrawals each year.

Inflation makes this a complicated equation, plus it's based on the notion that retirement savings should sustain you for at least 30 years. That's no good if you:

  • Want to retire early.
  • Plan to keep working into your 70s.
  • Think a long life is unrealistic for you.

And not to be a buzzkill or anything, but the average U.S. life expectancy is 78.6 years.

The 'multiply by 25' rule

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There's also something called the multiply by 25 rule, which is sort of the flip side of the 4% rule. You think about how much annual income you'd like to have in retirement, then multiply it by 25. That's how much you should save!

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So if you'd want to live on $60,000 a year in retirement, you'd need to have $1.5 million socked away. If you might get by on $35,000 a year, you'd have to save $875,000.

A big flaw with both this rule and the 4% rule is that they don't take into account your other sources of retirement money, like Social Security.

Plus, they ignore how pretty darn hard it is for a younger person to know how much monthly income will be enough to survive on decades from now.

The struggle to save

Maybe it's no wonder a recent survey from the online investment manager Wealthsimple found that while the overwhelming majority of millennials are saving, 40% still picked money as their biggest source of stress.

Also, only about a third (35%) of millennials said they're saving beyond employer retirement plans, like 401(k)s.

It'll take more than that to reach $1 million or more, if that's the goal. But most of us are a long way off.

A 2016 study from the Economic Policy Institute found the average U.S. household had less than $96,000 in retirement savings. Families close to retirement — in their late 50s and early 60s — had about $164,000 put away.

And that's the average. The Government Accountability Office says half of American households 55 and older have no retirement savings. Nothing. Zero. Nada.

Answering the big question

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So maybe this is the best answer to the "How much should I save for retirement?" question: SAVE SOMETHING!

Save whatever you can, invest the money so it will grow, and don't allow yourself to wind up with a goose egg instead of a nest egg. There's a ton of free or low-cost resources to get you going.

There's no good, standard savings goal everyone should shoot for, so don't worry about whether $1 million or $2 million will be enough.

And don't do anything crazy either.

In the Wealthsimple survey, 26% of millennials said they were so eager to retire by age 50 that they would give up sex for a year. And, 40% said they'd stay off social media for a year.

(Sex, maybe — but you think you could stop looking at social media?)

Up Next: Not sure where to start.Here's our guide on how to invest in stocks.

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