It takes a lot of money to be financially secure in old age. Federal Reserve data suggests that to be financially secure in retirement, people will likely need more than $500,000 in savings. In assessing how retirees are faring, it is important to go beyond simply asking people how they are feeling about their situation and look under the hood at objective measures of well-being.

The Federal Reserve’s Survey of Household Economics and Decisionmaking (SHED) is designed to capture various aspects of people’s financial security. The SHED asks people how they feel about their financial situation and large numbers of retirees report they are either “financially comfortable” or “doing ok financially.” The problem is this is a subjective (and not too accurate) way to get at the question of people’s actual financial well-being in retirement. And while there is no single, universal definition of financial security, a more objective and reasonable approach would start from the idea that financially secure adults have no trouble paying their bills on a regular basis. That is, they had no difficulties paying their bills in the recent past, face no problems paying their bills right now and will be able to handle small emergencies in the future, if they arise. Fortunately, the SHED includes indicators of trouble paying bills in the recent past including credit card balances, medical debt and a reliance on predatory sources of financing such as pawn shops and payday lenders. In addition, it asks whether people have skipped health care because of the costs in the past twelve months. As to current difficulties, the SHED survey specifically asks about people’s ability to pay all of their bills over the past twelve months. Finally, the SHED asks a series of questions about people’s ability to pay for small emergencies such as whether people are able to cover a $400 emergency with cash or savings. A financially secure retiree can be defined as one who has no credit card balances, no medical debt and no recent use of predatory financing, can pay all of their bills and can manage a $400 emergency. To be clear, this definition leaves out some aspects of financial security such as whether people can afford to repair their house, but it likely is a good approximation of what people need to be financially secure in retirement.

Only about half of retirees are financially secure

The data show that roughly half of retirees are financially secure by this definition. Over the years from 2019 to 2022, 51% of retirees between the ages of 65 and 74 years were objectively financially secure. In terms of how this lines up with the subjective measure of financial well-being, 73% of retirees who said they were “financially comfortable” were also financially secure, while 58% of those who said that they were “doing okay” were financially insecure. Living comfortably and doing okay are two quite different things, when it comes to people’s retirement finances. The bottom line is that almost half of retirees struggled with some aspects of their finances in recent years. These folks are not comfortable, but rather they are scraping by.

The SHED data suggests that financial security increases with older ages, but there’s a catch. Almost two thirds of those 75 and older were financially secure from 2019 to 2022. But, that improvement in financial security with age overlooks the fact that those with worse finances are also more likely to die at younger ages. Skipping health care after all is a key aspect of being financially insecure. By now, it is well established that wealth and health go hand in hand. Those who are better off financially, on average, get the advantage of longer lives. So, the apparent improvement in financial security past the age of 75 actually reflects what economists call “survivor bias.” That is, the data are skewed by those lucky enough to still be alive at older ages, which disproportionately consists of people with greater levels of wealth.

It Takes More than $500,000 Upon Retirement For a Person to Have a Financially Secure Retirement

So exactly how much money does it take to achieve financial security in retirement? The SHED data provide some rough sense. As shown in the chart, the largest group of financially secure retirees – 31% — had more than $1 million, the second largest group – 19% — had between $500,000 and $999,999 and the third largest group – 17% had between $250,000 and $499,999. That is, roughly two thirds of financially secure retirees had at least $250,000 in savings. It’s important to note that these savings amounts are for individuals, not couples. Many financially secure retiree couples will have substantially more than the amounts shown. Conversely, very few retirees with low savings were financially secure by the above objective measure. Retirees with less than $50,000 in savings represented only about one in ten of financially secure retirees, but four in ten of financially insecure retirees.

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