Financial Advisors Say Retirees Are Too Focused on Net Worth (These 9 Numbers Matter More)

Many Americans think $1 million is the magic number to put you on track for retirement. But according to financial advisors, focusing too heavily on net worth could create a false sense of security. A retiree with a seven-figure portfolio may still struggle with high health care costs or unreliable income.

Real-life numbers support this idea. The median retirement account balance for households ages 65–74 is $200,000, according to the Federal Reserve's Survey of Consumer Finances. Yet, millions of retirees make this work every day through Social Security, pensions, savings, and careful spending decisions.

To see what separates a sustainable retirement from one that's at risk of running short, we asked financial advisors which metrics they pay closest attention to. Here's what they said.

Net worth doesn't tell the whole story

Online articles often focus on the size of your nest egg, as if that's the only factor affecting retirement plans. Yet net worth alone doesn't reliably indicate whether someone will have financial stability throughout retirement.

Cody Schuiteboer, the president and CEO of Best Interest Financial, puts it bluntly: "I firmly believe that net worth is the most overrated number when it comes to assessing one's ability to successfully retire."

Another expert we reached out to, Paul Carlson, CPA and managing partner at Law Firm Velocity, agrees. "Two people with [the same] savings could have completely different strategies. One of them could be struggling with a large mortgage, high property taxes, and no other income sources. The other could be a lot more relaxed, with a house that's fully paid off and a reasonable Social Security benefit."

So, if net worth isn't the end-all metric, what is?

Income-to-expense gap

According to Schuiteboer, one of the most important retirement metrics is the gap between guaranteed monthly income and fixed expenses. The smaller this gap, the less pressure retirees place on their portfolios.

"The difference between guaranteed monthly income and fixed monthly expenses is the right metric," he says. "Before even thinking of how much money you have, think of how much your investments have to pay each month to meet your needs. Even a smaller portfolio becomes much safer if that gap is relatively small."

Annual spending needs

Your spending needs determine how much income you must generate. If you spend $4,000 a month, you face a different financial reality than someone who spends $8,000, even if you have identical portfolios.

If guaranteed income sources cover most of your expenses, your savings may last much longer. But when spending regularly outpaces income, even a sizable nest egg could shrink faster than expected.

Withdrawal rate

The percentage you take from your savings each year also matters more than the account balance itself. A large portfolio becomes a liability when drained too quickly, while a smaller one with a sustainable withdrawal rate may last for decades.

Health care costs

Carlson cautions retirees to keep an eye on health care costs. "As the years go by, you may need more health care support and have a lot less flexibility in adjusting your income. Because the pressure on that balance is likely to increase over time, you must address it," he says.

With Fidelity estimating that a typical retired couple would need $345,000 to cover health care costs during retirement (minus long-term care), Carlson's warning rings true.

How much Social Security covers

The average Social Security benefit is expected to hit $2,071 this year. Once you determine how much of your spending is covered by this monthly check, you understand the real pressure on your portfolio.

Retirement income expert Frederick Saide, Ph.D., Managing Partner at MoneyMattersUSA Advisory LLC and President of Foundation Insurance Services, gives us a practical example: "Social Security and a small pension or a small annuity: $2,400/month; essential expenses: $2,800/month; coverage ratio is 86%. The portfolio needs to cover the remaining $400 a month gap and not the entire monthly retirement income."

Years of cash reserves

Having one to three years of spending needs in cash helps you avoid selling investments. While this isn't the easiest thing to achieve, it's of great help during market downturns, when selling from your portfolio may have disastrous effects on your long-term financial fitness.

Tax rate during retirement

Mark Clark, founding partner at Prestige Advisors, warns retirees to be strategic about their tax rates and avoid getting bumped into higher brackets.

"This is the part most people miss. It's not just how much you've saved. It's which buckets you pull from and when. Between taxable, tax-deferred (IRA/401k), and tax-free (Roth) accounts, the wrong order can trigger taxes on your Social Security and higher Medicare premiums. Smarter tax, smarter growth," explains Clark.

Years your retirement needs to last

Carlson thinks longevity is a subject many seniors overlook because experts tell them to focus only on whether they can afford to retire. He says that being able to "afford staying retired" is equally important.

With people living longer than ever before, planning for age 95 rather than age 80 matters more than focusing on your current net worth. Taxes, inflation, and long-term care may sneak up on those who only watch their balance.

Debt-to-income ratio

A retiree with a paid-off home and no debt may require fewer savings than someone carrying mortgage, auto, or consumer debt obligations.

Or, as Schuiteboer puts it: "Small balance plus small fixed monthly payments are perfectly safe; large balance and large fixed monthly payments are not."

Bottom line

Retirees often assume a seven-figure portfolio equals financial fitness. But advisors say retirement success is less about how much you've accumulated and more about how efficiently your income and costs work together. That's why someone with modest savings and strong income streams sometimes enjoys a more secure retirement than someone with millions and no financial plan.

Want a tip? According to Cody Schuiteboer, housing expenses are often the easiest place to improve retirement security. Lower housing costs reduce the gap between your guaranteed income and fixed monthly expenses, which means your investments have less work to do each month.