Hagel outlined his vision in a speech at the Pentagon, a week before President Barack Obama is to submit his 2015 budget plan to Congress.
Hagel said the military must adjust to the reality of smaller budgets, even as the United States faces a more volatile, more unpredictable world that requires a more nimble military.
Under the Hagel plan, which Congress could change, the active-duty Army would shrink from its current 522,000 soldiers to between 440,000 and 450,000. That would make it the smallest since just before the U.S. entered World War II
Army leaders have been saying for months that they expect their size would shrink as the nation prepares to end its combat role in Afghanistan this year.
Gen. Ray Odierno, the Army chief of staff, said recently that whatever the future size of the Army, it must adapt to conditions that are different from what many soldiers have become accustomed to during more than a decade of war. He said many have the misperception that the Army is no longer busy.
"People tend to think that the Army is out of Iraq and Afghanistan, and there is not much going on," he said Jan. 23 at an Army forum. "The Army is not standing still. The Army is doing many, many, many things in order for us to shape the future environment and prevent conflict around the world."
The last time the active-duty Army was below 500,000 was in 2005, when it stood at 492,000. Its post-World War II low was 480,000 in 2001, according to historical tables provided by the Army on Monday. In 1940 the Army had 267,000 active-duty members, and it surged to 1.46 million the following year as the U.S. approached entry into World War II.
Navy Rear Adm. John Kirby, the Pentagon press secretary, said Monday that Hagel consulted closely with the military service chiefs on how to balance defense and budget-saving requirements.
"He has worked hard with the services to ensure that we continue to stand for the defense of our national interests - that whatever budget priorities we establish, we do so in keeping with our defense strategy and with a strong commitment to the men and women in uniform and to their families, Kirby said.
"But he has also said that we have to face the realities of our time. We must be pragmatic. We can't escape tough choices. He and the chiefs are willing to make those choices," Kirby said.
