For most Americans, the “magic number” for retirement is $1.26 million, according to Northwestern Mutual.
However, it’s easy to forget that retirement isn’t about hitting a specific dollar target but about replacing your current income so that you can sustain your lifestyle without the need to work.
This crucial difference was highlighted in a recent report from JPMorgan Asset Management. [1] The banking giant’s 2025 Guide to Retirement illustrates how many people can retire comfortably if they shift their attention away from becoming millionaires to simply replacing their current income. Here’s a closer look at the underlying calculations.
If income replacement is your primary objective, a lower or middle income means you need less or a modest amount in retirement savings.
JPMorgan’s report suggests that households with a relatively low income can count on Social Security benefits and employer-backed private retirement schemes replacing a higher proportion of their current earnings. Their income replacement rate calculations assume an annual gross savings rate of 5% until retirement for households earning $90,000 and below per year and an annual gross savings rate of 10% until retirement for those making $100,000 or more.
A family earning $80,000, according to their calculations, could have nearly 81% of their income replaced by these sources in retirement. Meanwhile, a family earning $40,000 could see 95% of their income replaced.
For higher-income families, Social Security and private retirement plans don’t cover as much of their income, says the report. A family earning $300,000, for instance, could see only 55% of their income replaced by these sources.
Therefore, according to JPMorgan’s calculations, for households with annual income of $125,000 and above, a seven-figure savings target could be justified.
Naturally the retirement savings checkpoints depend on your household income as well. A 40-year-old with a household income of $50,000 should have current savings of $105,000. On the other hand, a 40-year-old with a household income of $90,000 should have current savings of $220,000.
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For someone with average earnings who retired in 2024 at age 65, Social Security benefits replaced about 39% of past earnings, according to the Centre on Budget and Policy Priorities (CBPP). [2] It’s likely that many of these retirees also had other sources of income, such as private retirement plans, that covered a portion of their needs.
Put simply, the average American should look closely at their own financial situation to determine how much they will need to sustain their lifestyle in retirement.
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An arbitrary savings target might appear simple, but it isn’t always realistic. According to Investopedia’s analysis of Federal Reserve data, only 3.2% of retirees and only about 2.6% of Americans in general have $1 million in retirement. [3] That means a seven-figure target is unrealistic for most people.
Based on the income-replacement model, JPMorgan estimates that the typical American household needs far less than $1 million to retire comfortably. A household earning $90,000, for example, with an annual gross savings rate of 5% until retirement, should reach a target of $700,000 in savings by the age of 65 to “maintain an equivalent lifestyle in retirement.”
If the household earns $30,000 or $50,000, the target is $175,000 and $350,000, respectively.
However, for high-income households the targets are higher and their ability to save is greater. JPMorgan suggests an annual gross savings rate of 10% for households that earn $100,000 or more and based on this rate a family earning $125,000 would need to reach $1.09 million by the age of 65 to retire comfortably. A family earning $300,000, meanwhile, would ideally need to target $2.7 million by the same age.
In other words, you need a seven-figure retirement target only if your household earns $125,000 or more right now. For most ordinary families a lower target could be justified. However, there is one big caveat you must consider before adopting these calculations into your own retirement plan.
JPMorgan’s calculations hinge on the supplemental income from Social Security, however the program’s funding is in jeopardy. Beneficiaries could face a 24% cut by 2032, according to Committee for a Responsible Federal Budget (CRFB), and a 30% or greater cut by 2099. [4]
The bank acknowledges that this can be avoided if Congress acts to bolster the program’s trust funds before they run dry, but if you are relatively young and not optimistic about lawmakers solving this problem, you may need a higher savings target to ensure a comfortable retirement.
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JPMorgan Asset Management (1); Centre on Budget and Policy Priorities (2); Investopedia (3); Committee for a Responsible Federal Budget (4)
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