A couple who intends to stop working at age 65, expects to live to age 90 (25 years of needed income), and wants a lifestyle that costs $40,000 in today’s dollars will need a $1 million to buy the income they want ($40,000 X 25 = $1 million). Certainly, the cost will be reduced by any Social Security or pensions they receive or if they work part-time while retired. It could cost more if they live longer, want a more expensive lifestyle, or if inflation outpaces their investments.
Most employees do not consider retirement something they must buy. Yet how many of them live in a house that cost 10 or 20 times their annual pay?