For Americans dreaming of financial freedom, the single biggest question remains: how much passive income do I need to retire comfortably?
The answer depends on where you live, how long you expect to spend in retirement, and how your investments perform—but the gap between low-cost and high-cost states is far larger than most realize.
According to new 2025 analysis from GOBankingRates, the amount you’d need to fund 25 years of retirement ranges from $712,913 in West Virginia to $2.21 million in Hawaii—a staggering $1.5 million difference based purely on geography. These figures, drawn from U.S. Bureau of Labor Statistics cost data, illustrate that “how much you need” isn’t one number—it’s a deeply personal calculation shaped by lifestyle, longevity, and inflation.
Understanding Your Passive Income Target
Financial planners often recommend replacing 70%–85% of your pre-retirement income through a combination of Social Security, pensions, and passive income from investments. But a more practical approach is to reverse-engineer your goal: estimate your annual spending, subtract fixed income sources, and calculate how much your savings must yield to fill the gap.
As of mid-2025, the average Social Security benefit for retired workers is about $2,008 per month, or roughly $24,100 per year, according to the Social Security Administration. If your total annual expenses are $70,000, you’d need to cover roughly $46,000 through your savings or passive income streams—whether from dividends, rental properties, annuities, or investment withdrawals.
The “4% Rule” and Why Location Matters
One of the most common frameworks for estimating retirement needs is the 4% rule, developed by financial planner William Bengen in the 1990s. It assumes that withdrawing 4% of your portfolio annually (adjusted for inflation) provides a sustainable income stream for about 30 years.
While some modern advisors argue for a 3.5%–3.8% withdrawal rate to reflect lower bond yields and longer lifespans, the rule remains a useful starting point. Using it, a retiree needing $50,000 per year in passive income would need approximately $1.25 million saved.
That aligns closely with the national median target found in the 2025 GOBankingRates report, which estimates Americans need about $1.05 million on average to retire at 65 and cover essential living expenses for 25 years. However, that number shifts dramatically by state.
Cost of Retirement by State: The Geography of Financial Freedom
Where you retire could completely reshape your passive income goals. States like Hawaii, California, and Massachusetts demand the largest nest eggs—driven primarily by housing and healthcare costs—while West Virginia, Kansas, and Mississippi offer far lower thresholds.
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Hawaii retirees need roughly $2.21 million in savings to maintain essential living standards, with an annual cost of living topping $110,000.
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In contrast, West Virginia residents can expect to need around $713,000, reflecting an annual cost of about $51,000.
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Even among mid-tier states, variation is notable: Florida’s retirees require about $977,000, Texas just over $830,000, and Colorado about $982,000.
That means an identical lifestyle might require three times as much savings in Honolulu as it would in Charleston, West Virginia. For passive income planning, these cost-of-living disparities translate directly into higher or lower annual yield requirements.
Put differently, if you relocate from a $100,000-per-year state to one where costs are $60,000, your needed passive income drops by $40,000 annually—the equivalent of $1 million less in required investment capital under the 4% rule.
Making every dollar count: Start saving early to grow your retirement funds over time.
Inflation, Longevity, and Health Care: The Hidden Variables
Beyond geography, three forces heavily influence how much passive income you’ll actually need to sustain retirement: inflation, longevity, and medical costs.
Inflation has cooled since its 2022 highs but remains persistent at around 2.8% annually as of late 2025, according to the Bureau of Labor Statistics. That means the purchasing power of your retirement income could halve over a 25-year horizon if unadjusted.
Longevity is another underestimated factor. A healthy 65-year-old today has a 50% chance of living past 87 and a 1-in-4 chance of reaching 93, per Society of Actuaries data. Planning for a 30-year retirement rather than 20 can require hundreds of thousands more in assets—or a portfolio generating extra passive income to extend sustainability.
Health care also looms large. Fidelity’s 2025 Retiree Health Care Cost Estimate puts the average 65-year-old couple at needing about $330,000 over their lifetime to cover medical expenses not paid by Medicare.
Building Sustainable Passive Income Streams
To meet these needs, retirees are increasingly combining traditional investment withdrawals with diversified passive income sources. Common strategies include:
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Dividend and interest income: Many retirees target a 3–4% blended portfolio yield through dividend stocks, municipal bonds, and high-yield funds.
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Rental real estate: Owning income-generating property can provide steady monthly cash flow, though it comes with management costs and market risks.
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Annuities: Fixed or variable annuities offer guaranteed lifetime income at the expense of liquidity.
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Part-time business or royalties: Consulting, digital products, and small enterprises often add supplemental income that cushions against inflation.
The key is balance: enough guaranteed income to cover essentials and enough growth-oriented assets to preserve purchasing power.
People Also Ask
How much passive income is considered enough to retire comfortably?
It depends on location and lifestyle. Most Americans need $60,000–$80,000 per year to maintain a middle-class retirement. Subtract Social Security benefits (about $24,000 on average), and your portfolio or passive streams must generate roughly $40,000–$55,000 annually—or $1–$1.4 million saved, assuming a 4% drawdown.
Is the 4% rule still safe in 2025?
Financial planners now treat it as a starting guideline, not a guarantee. With longer lifespans and market uncertainty, a 3.5% rate offers more flexibility.
Which U.S. states are best for low-cost retirement?
According to 2025 data, West Virginia, Mississippi, Kansas, and Alabama are the most affordable, all requiring under $800,000 to cover 25 years of expenses.
Which states are most expensive?
Hawaii, California, and Massachusetts top the list, each demanding more than $1.6 million in savings to retire comfortably.
Conclusion: The Real Cost of Freedom
The dream of living off passive income is entirely achievable—but the amount required depends less on ambition and more on arithmetic. In 2025, the average American retiree needs roughly $1 million to maintain a modest standard of living, but that figure can double or even triple in high-cost regions like California or Hawaii.
For savers approaching retirement, the smartest path is to calculate your personal annual spending, adjust for state-level costs, and test multiple withdrawal-rate scenarios. Every dollar you save—or every relocation decision you make—can translate to tens of thousands less you’ll need in passive income.
Still, affording retirement remains one of my biggest personal worries, and I know I’m far from alone. With inflation eroding purchasing power and housing costs rising faster than wages, many Americans feel that achieving financial independence is slipping out of reach. In my view, the state should be doing far more to help ordinary people prepare for retirement—whether through better tax incentives, stronger Social Security protections, or greater access to affordable investment options.
Whether you’re planning for a beachside Hawaii retirement or a quiet Appalachian escape, the real secret to financial independence isn’t just how much you earn—it’s how well your passive income aligns with the life you actually want to live.
