The retirement system in the United States was not designed to be the sole source of income during retirement. However, millions of workers reach age 67—the Full Retirement Age (FRA)—without having accumulated enough savings to supplement their monthly government payments. Available figures paint a stark picture of the gap between what Social Security pays and the true cost of living in this country.
According to the Bureau of Labor Statistics (BLS), retiree households had average annual expenses of $61,432, equivalent to $5,119 per month. This figure represents the national average and does not consider variables such as state of residence, household composition, or pre-existing medical conditions.
Using Your Social Security Savings: The 4% Rule as a Calculation Tool
Statistically, it is the minimum reference point for calculating the cost of maintaining a standard life after leaving the workforce. In response to that expense, Social Security provided an average monthly benefit of $1,975 in recent years, equivalent to $23,700 per year.
The difference between these two figures reveals an annual gap of approximately $37,732 that the beneficiary must cover with their own resources. Without additional savings, this gap will not close.
To determine how much accumulated capital is needed, financial planning often uses the so-called 4% rule, which states that a retiree can withdraw that percentage of their portfolio each year without depleting the fund over a horizon of approximately 25 to 30 years. Applied to the identified gap, the calculation is straightforward: $37,732 divided by 0.04 yields a figure close to $943,300.
Some Say You’ll Need $1 Million in Social Security Savings
With a more conservative approach, reducing the withdrawal rate to 3.5% to extend the fund’s sustainability, the required capital amounts to $1,078,000. Both scenarios place the minimum savings threshold above one million dollars for those who intend to cover average expenses without depending exclusively on the state pension.
These calculations do not include medical costs, which represent a significant variable. According to Fidelity estimates, a couple in their sixties needs an average of $330,000 in additional after-tax assets set aside specifically for healthcare expenses throughout their retirement. Including this variable significantly increases the total capital required.
Geography as a Determinant of the Cost of Living in the US
The state also significantly alters the calculation parameters. The cost of living is not uniform across the United States. Living comfortably in Mississippi requires approximately $61,315 annually, while in Hawaii that figure climbs to $129,296 per year. The difference between these two extremes is more than double, making state of residence one of the most important economic decisions when planning for retirement.
Another factor that directly impacts the equation is life expectancy. A retiree who retires at 67 and lives to 90 must finance a period of 23 years. The longer this time horizon, the greater the pressure on accumulated savings, and the lower the annual withdrawal percentage must be to ensure the fund’s sustainability.
The combination of all these factors—national average expenditure, state benefit, medical costs, geographic location, and life expectancy—allows for the construction of a table of scenarios that guides planning without establishing a universal figure.
The Most Comfortable Numbers for a Better Retirement
In the most basic scenario, considering only the average spending reported by the BLS and applying the 4% rule, the necessary savings range from $900,000 to $1,000,000. If a medical expense cushion is included, the figure shifts to the $1,200,000 to $1,400,000 range. For those planning a retirement with greater spending capacity or residing in high-cost states, the threshold exceeds $1,500,000.
In all cases, Social Security covers approximately one-third of the typical expenses of a retired household. The remaining two-thirds depend on savings accumulated in instruments such as 401(k)s or IRAs over a working life. This proportion is consistent across the various scenarios analyzed and does not vary significantly by state of residence.
