Andrew Biggs, a senior fellow at the American Enterprise Institute think tank, challenges the common perception that retirees need a million dollars in savings to retire comfortably. He argues that retirees can live well on $50,000 to $100,000 in savings based on the experiences of actual retirees. While financial advisers often recommend saving 10 times your annual salary for retirement, Biggs believes this amount is overstated to attract business from retirees.
Biggs examined responses from retirement-age Americans in a federal survey and found that a majority of retirees aged 65 to 74 reported that they were managing financially well. Only 15% said they were struggling despite not having close to $1 million in savings. The average couple retiring in 2022 received nearly $46,000 in annual Social Security benefits, which covered their basic needs without tapping into their savings. Biggs suggests that retirement planners may be inflating the income needs of retirees to generate business.
The reactions to Biggs’s argument varied from admiration to outrage. While some agreed with his perspective, others challenged the idea that retirees can live comfortably without substantial savings. Alicia Munnell, director of the Center for Retirement Research at Boston College, believes that many retirees face financial challenges and may not be forthcoming about their struggles in surveys. She agrees with Biggs that retirement savings goals can be unrealistic and exaggerated.
Retirement experts often recommend saving 10 times your annual salary to supplement Social Security income and adhering to the 4% rule for withdrawals. However, Biggs believes these guidelines are inflated to benefit investment firms and financial planners. He argues that retirees typically reduce their spending as they age, making the 80% rule unnecessary for many retirees. While the rules may be useful for early and mid-career individuals, they may not be as relevant for those nearing retirement age.
Ultimately, the idea that retirees need a million dollars in savings may be overblown, according to Biggs. While some financial advisers argue that the amount needed for retirement varies depending on location and individual circumstances, the general consensus in the retirement-planning industry is that saving a substantial amount is essential. Biggs’s perspective challenges this notion, suggesting that retirees can live comfortably with less savings than commonly believed.
