"Do I have enough to retire?"

It's the question nearly every pre-retiree asks — and it's often answered with: "Do you have $1 million?"

Sometimes it is $1.3 million, and occasionally, it is even higher.

But if you have a pension, these benchmarks likely don't apply to you. In fact, retirees with pensions are in a stronger position than they realize and may not need anywhere near $1 million to retire comfortably.

Or, if they do, then they may need to find ways to spend more in retirement.

Here's why.

The $1 million rule leaves out a key piece

Most retirement guidelines are built for people without pensions. They assume your savings must generate income to replace your paycheck, which is where figures like $1 million or more can come from. These types of retirement plans are designed to produce enough annual income to support your retirement lifestyle.

A pension already does that, so when you apply the same savings target to someone with a pension, you're essentially double counting. (I wrote a book for those with pensions that you can request here.)

What is your pension really worth?

To understand how much you actually need to retire if you have a pension, you have to reframe your thinking — not in terms of account balances, but in terms of income.

Let's say you have a $70,000 annual pension. If you took $1 million and tried to replicate that same guaranteed income stream through an immediate income annuity, you may end up in a similar place: Roughly $70,000 per year for life.

A pension can be thought of as an equivalent to having a $1 million investment portfolio dedicated to producing income.

If your pension includes a cost-of-living adjustment (COLA), it may be even more valuable.

How does Social Security affect the math?

Now, let's layer in Social Security with a simple example:

• Pension: $70,000 per year
• Social Security: $36,000 per year

You're already over $100,000 in annual income before touching your investments. That's a level of income many retirees aim for with $1 million or more in savings alone.

So, the question becomes less about "Do I have enough saved?" And more about "How much do I actually need from my portfolio?"

Why retirees without pensions need more

This contrast highlights just how powerful a pension is. Without one, retirees must rely heavily on their investments, often withdrawing 4% or more annually.

That introduces real risks, especially early in retirement: Sequence of returns risk is the danger that poor market performance early in retirement, combined with ongoing withdrawals, will prematurely deplete a portfolio and jeopardize long-term financial security. I call it a double loss.

A pension helps protect you from those risks by covering a significant portion of your essential expenses with guaranteed income.

This is a main reason why studies consistently show retirees with pensions report higher confidence and even greater happiness in retirement.

So, do you actually need $1 million?

Not necessarily. If your pension and Social Security already cover most (or all) of your lifestyle needs, your investment portfolio becomes a supplement, not a necessity.

That could mean:

• You can retire with less saved than you thought
• You may be able to retire earlier
• You could have more flexibility in how you use your money

On the flip side, if you do have $1 million or more and a pension, you may be in an even stronger position than you realize.

What happens if you have both?

Let's revisit that earlier example:

• $70,000 pension
• $36,000 Social Security
• $1 million portfolio

You're already looking at more than $100,000 of guaranteed income. If your portfolio generates an additional $40,000 to $70,000 annually, you could be looking at $140,000 to $170,000 per year in retirement income.

For some people, this could be the same or more than their working income. That raises a different question entirely: "What are you going to do with all that money?"

The real shift: From accumulation to purpose

For many "Midwestern millionaires," who are hardworking, disciplined savers who didn't earn massive incomes but built their wealth steadily (I wrote a book on this that you can request here), retirement requires a mindset shift.

You've spent decades saving, and now you must decide how to use your hard-earned dollars. This mostly comes down to three choices:

• Spend it (travel, experiences, lifestyle)
• Gift it (help children or family now)
• Give it (charitable impact)

Most people haven't put a lot of thought into this, as they have been heavily focused on accumulation.

Also, remember to plan for taxes, as they are one of the biggest concerns for people in this crowd.

Don't ignore taxes and strategy

One important caveat: Having more income, especially from pensions, often means higher taxes in retirement than expected, and strategies like Roth conversions, tax diversification and income timing can help you:

• Maintain control over your tax bracket
• Reduce required minimum distributions (RMDs)
• Increase after-tax income over time

Without a plan, even strong financial positions can become inefficient.

The bottom line

If you have a pension, the traditional $1 million retirement target may not apply to you.

You may already have more than enough. The real opportunity isn't just retiring comfortably, but recognizing the strength of your position and using it intentionally.

Once your income is covered in retirement, it becomes less about hitting a number and starts being about what that number can allow you to do.

Related Content

• 5 Financial Planning Secrets of Millionaires
• If You're the Millionaire Next Door, You May Be a Terrible Spender
• Do You Have at Least $1 Million in Tax-Deferred Investments?
• The Secret to Reducing Lifetime Taxes for Retirees in the 2% Club, From a Financial Planner
• Many Retirees With a Pension and $1 Million-Plus Do These 7 Things (and Regret It Later)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.