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Do You Need Multiple Millions to Retire?

Several years ago, Suze Orman claimed that $5 million was the minimum amount needed to retire early (i.e., before claiming Medicare and Social Security benefits). Financial blogger Sam Dogen, better known as the Financial Samurai, agreed with her and then went on to claim that the new safe withdrawal rate was a pitiful 0.5%, meaning that someone desiring $60,000 of retirement income needed a $12,000,000 portfolio. More recently, articles on Seeking Alpha and The Motley Fool stated that $3-$4 million is the amount that Millennials (i.e., those currently aged 25-40) should aim to have by retirement age.

There are several reasons offered for these high estimates, and in this article, I'll break them down and examine their plausibility.

Social Security

Many are fearful that Social Security is going to simply cease to exist. In the Seeking Alpha article, the statement is made "assuming the social security benefits won't be around (at least in the current form), you will have to save for some kind of annuity that would provide benefits somewhat similar to the current social security" (sic). 47% of the Millennials polled in a 2022 survey said that 'somewhat' or 'strongly' agreed with the statement that they would "not get a dime of the Social Security benefits I have earned."

Such beliefs are largely built on a misunderstanding of how Social Security benefits are funded. Most of the benefits being currently paid out by Social Security come from payroll taxes. Both employers and employees pay 6.2% of employees' wages up to a taxable maximum of $160,200 in 2023.

However, the amount being collected through payroll taxes is not sufficient to pay for all the benefits being provided by Social Security. Currently, the deficit is being paid from reserve funds that were set aside decades ago, when funds coming into Social Security exceeded the benefits being paid out. These reserve funds are expected to be depleted by 2035. But, contrary to what many believe, this does not mean that Social Security benefits will cease. Rather, the total amount of Social Security benefits will be limited to what the program takes in via the payroll tax. The Social Security Administration currently estimates that it will be able to pay out about 80% of the benefits after the reserve funds are exhausted.

There are several means available to Congress to close that gap, but even if they don't, receiving 80% of one's expected Social Security benefits is a far cry from 0%.

Further, most of those in the above-referenced survey are clearly not knowledgeable about how Social Security works right now. Under half did not believe that Social Security benefits are guaranteed income for the remainder of one's life, and more than half thought that Social Security benefits were not taxable. If these people don't understand how Social Security functions, it's understandable why so many of them believe that Social Security benefits will just vanish in the future.

A 67 year old who had inflation-adjusted earnings of $70,000 will receive about $2,000 per month of Social Security benefits. If this person was withdrawing 4% of their portfolio annually instead, $600,000 would be needed to support this same level of income. Ignoring Social Security benefits would have a substantial impact on the amount that Millennials would need to accumulate for retirement, even if these benefits are reduced by 20% in the future.

Bond Yields

When Sam Dogen argued for a 0.5% safe withdrawal rate from a portfolio, he was basing this assertion on the yield of 10 year Treasuries, which fell below 1% in 2020. His theory then (and now) is that "[r]eturns in the stock market, bond market, and real estate market are all relative to the risk-free rate of return," meaning that stocks, for instance, will have lower returns if bond yields are lower rather than higher. So, if bond yields are low, stock returns will be lower, and the amount that retirees can safely withdraw from their portfolios goes down.

The problem is that this theory doesn't hold water, at least not in an actionable way for investors. The 'premium' that stocks have returned over 10 year Treasuries has not been remotely consistent or predictable over time. Look at the table below for an illustration of this.

Annualized Real 10 Year Treasury Returns

Annualized Real U.S. Stock Returns

Stock Return Premium

















Do you see a pattern here? I don't either! And that's because there isn't one. Neither stock returns nor the difference in stock and bond returns have been remotely predictable from the returns of 10 year Treasuries (though the latter has been quite closely tied to starting yields).

In short, you simply can't predict what stocks are going to return based on bond yields or returns.

Further, as I've noted in a prior post about returns risk and sequence of returns risk, you can't come close to an accurate prediction of what the 30 year safe withdrawal rate will be even if you knew what the average returns would be over that same 30 year period! This is because the order in which returns occur matters even more for retirees than does the size of those returns.

As such, the very idea that prudent retirees must base their withdrawals on a fraction of the current yield of 10 year Treasuries is preposterous.

High spending in retirement

This is one factor that might result in some Millennials needing several million dollars to retire, but it certainly won't be true for all Millennials.

Let's assume that a Millennial who had average annual earnings of $100,000 while working wants $80,000 of retirement income, the difference caused by no longer needing to save and paying less in taxes. At age 67, this person would have Social Security benefits of about $31,200 annually, but let's reduce that by 20% to $25,000 (see the above section on Social Security as to why), so the $55,000 would need to be supported by the retiree's portfolio. If a 4% withdrawal rate was used, the needed portfolio size would be $1,375,000 ($55,000 / 4%), and if a 3% withdrawal rate was used, the needed portfolio size would be $1,833,000. In neither case does the Millennial need close to $3-4 million.

But what if the Millennial had earned an average of $200,000 annually and wanted $160,000 of retirement income? After the 20% reduction, Social Security benefits would be about $34,000, and the remaining $126,000 would translate to a portfolio size of $3.15 million with 4% withdrawals or $4.2 million with 3% withdrawals. This is right in the range of the $3-4 million suggested in the articles above, but this would result in the retiree having more than double the annual income of U.S. households. In other words, this is far more than most Millennials would need to retire.

Thompson Pass, Alaska


This factor is the most plausible in the statement that Millennials will need $3-4 million. If inflation averaged 3% over the next 30 years, a retiree that needed $1 million in today's dollars would need $2.43 million in 2053.

While it's true that inflation increases the number of dollars needed to achieve the same buying power and, consequently, the size of retirees' needed portfolios, the events of recent years have shown us that we don't know what future inflation will be. If inflation averages 2%, which is the Federal Reserve's target, then $1 million today would have the same buying power as $1.81 million in 2053, but this would increase to $3.24 million if inflation averaged 4%.

Rather than trying to specifically estimate future inflation, most in the personal finance use real (i.e., inflation-adjusted) returns for planning purposes. Keeping everything in today's dollars is far simpler and helps to maintain a better perspective.

Using future dollars in estimates of what retirees need might generate shock value, which might be what some financial writers are trying to achieve, but it's creating a highly imprecise target that could be very far off the mark. But even worse than that, it can be highly discouraging to people to hear that the $1 million they thought they needed to save for retirement, for instance, may actually be $2-$3 million. It's not unrealistic to expect that upon hearing this, many will give up on the idea of saving for retirement altogether because they believe it to be an unachievable goal. Humans aren't naturally wired to think in terms of the compound growth of their future earnings, portfolios, or an inflation index.

Final Thoughts

Some Millennials might need $3-$4 million to retire in 30 years, but this is dependent on many factors. To be sure, most Millennials will not need even half that amount in today's dollars to have a very comfortable retirement.

I earnestly wish that financial pundits would focus on realistic and actionable topics that would motive people to take a more proactive stance toward their financial situation instead of throwing out ridiculous information in an attempt to get more clicks.

Rather than focus on what someone else believes you might need to retire, you need to carefully consider your own situation. Don't take what any one person, including me, tells you as being accurate.

"Without consultation, plans are frustrated, but with many counselors they succeed."

-Proverbs 15:22

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