Pennsylvania man, 62, happy living on $2,600 a month from Social Security and his part-time job — says he wouldn't know what to do with a $1 million nest egg

Will you need less income than you think?

The average American aged 55 to 64 spends $83,379 a year, according to the latest data from the Bureau of Labor Statistics. But that number drops to $60,087 among Americans aged 65 and older.

Meanwhile, as of August, the average person receiving Social Security retirement benefits collects about $23,000 per year. Getting to $60,087 in spending would require about $37,000 in non-Social Security income. And while not all of that has to come from savings, for those who don’t want to work in their golden years or don’t have a pension, it’s easy to make the case for needing a $1 million nest egg — or close to it.

If we follow the popular 4% rule, it would take $925,000 in savings to allow for $37,000 (adjusted for inflation) in annual withdrawals. If we assume a more conservative withdrawal rate of 3.5%, $1 million would be closer to the magic number. So, unless you’re planning to lead a very frugal lifestyle, you may, in fact, find yourself wanting if you’re short of a $1 million nest egg.

But if you’re someone who makes the most out of every dollar, you may be able to get away with saving much less. Dziamniski doesn’t own a car and relies on rides and public transportation. He also doesn’t take vacations, and by his account, he’s fine with all of that.

If you feel similarly, you may not need as much savings as you initially thought. That being said, it’s important to be honest with yourself about what you want your golden years to look like.

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Make sure you have a backup plan

Dziamniski’s financial situation might work for him now, but his limited savings could put him in a serious bind if something were to happen and he needed more cash on hand than what he has in his emergency fund.

His job also represents more than half of his income. At some point, he may not be able to keep doing that work, leaving him with just a monthly Social Security check. His current $1,000 benefit should increase through the years thanks to the program’s automatic cost-of-living adjustments, but those increases may not be enough to cover his expenses.

The poverty threshold for a single person under the age of 65 was $15,852 per year in 2023 and $14,614 for those aged 65 and over, according to the Census Bureau. Dziamniski risks plunging below these levels if his work hours are severely cut back or he ends up having to leave his job entirely.

That’s why it’s important to have some savings and not just rely on Social Security and income from a part-time job. Health issues or an economic downturn could be detrimental to your finances. And while lawmakers have never allowed Social Security to cut benefits in the past, that’s a possibility in about a decade’s time due to an impending financial shortfall.

You don’t necessarily have to push yourself to save $1 million or more, but it’s a good idea to create a budget that outlines what your essential needs and costs might be at this point in your life.

From there, you can get an estimate of your monthly Social Security benefit and figure out how much savings you need to make up the difference each year.

If, like Dziamniski, you plan to live modestly and whittle down your budget by cutting any unnecessary expenses, you may not require as much savings. But if you think you’ll want to go on adventures and travel a bit, or you want extra money so you don’t have to stress about things like home repairs, aim a bit higher. It may also be worth sitting down with a financial adviser for some help setting a savings goal rather than go through the process alone.