Can You Retire on $1 Million? Here’s How Far It Will Go | Personal Finance

Becoming a millionaire seems like a surefire way to live comfortably in retirement, but is it really?

Over a third of billionaires say it takes a miracle to get a secure retirement.according to it 2021 Natixis Global Survey of Individual Investorssurveyed 1,617 people who have accumulated at least $1 million in investable assets.

Rising inflation and volatile stock markets have made even those with big nest eggs nervous about the future. increase. Michael Foguth, president and founder of his Foguth Financial Group in Brighton, Michigan, said:

Those with pensions, Social Security, and pensions may find that their income can cover their expenses, and that savings are just the icing on the cake.

factors such as housing and healthcare Also influence your budget and determine if $1 million is an appropriate savings target for your needs. Can you retire with $1 million?

How long your $1 million retirement plan will last depends on:

Geography: Costs can vary dramatically from country to country, and where you live can determine whether you can successfully retire on a million dollars. His GOBankingRates, a financial website, analyzed average spending in all her 50 US states to find out how long $1 million will last after retirement. The Hawaii retiree found that he would run out of $1 million in less than 11 years, but the Mississippi cash would last him more than 25 years.

longevity: No one knows your exact life expectancy, but you can make an educated guess based on your health and family history. If you’re in your 80s, 90s, and likely to live longer, you might find that $1 million isn’t enough.

Lifestyle: Retirees need to make smart spending choices, and those who choose expensive lifestyles will need more cash in their nest eggs, says Tyler Ozanne, certified financial planner at Probity Advisors in Dallas. , said: Retirees may have less say in some of the factors listed here, but discretionary spending is completely in their control.

Health care: 2022 Fidelity Retiree Medical Cost Estimates We found that the average 65-year-old couple retiring this year can expect to spend $315,000 on retirement medical expenses. “Hopefully Medicare is there and good enough for people,” said Barbara Taibi, tax partner at Eisner Advisory Group in Eislin, New Jersey. But the reality is that even Medicare can increase your out-of-pocket costs. It turns out that healthy seniors spend less, helping their retirement savings last longer.

Long-term care: Fidelity estimates do not include long-term care. 2021 Genworth Health Cost StudyMedicare does not pay for long-term care. Couples without long-term care insurance may also find that a stay in a nursing home leaves the surviving spouse with few assets to pay for the rest of their retirement.

Retirement Income: Most people don’t live off their retirement savings alone. Osanne said government data shows that his average spending over 65 will be about $52,000 in 2021, and he may not need much savings to supplement his Social Security or pension income. Even those who do not receive an annuity may be able to duplicate those payments by purchasing an annuity.

Asset composition: How you save $1 million can also affect how long it lasts. According to Taibi, “You can’t have $1 million in cash and expect to[retire]and make money with it.” Ideally, it is invested to keep up with inflation. Similarly, investing $1 million is different from having $800,000 in her home equity and $200,000 in a portfolio, she says. Money held in real estate is not liquid and there are costs associated with the property that can offset its value.

Investment risk: Retirees should also take a closer look at their portfolios if they want answers about how long their $1 million will last in retirement. “It’s all about how you invest,” says Fogas. Investing aggressively puts your money at risk of loss, but being too conservative can mean your savings won’t grow enough to offset inflation and withdrawals.

inflation: After years of near-zero inflation, prices for many products have skyrocketed this year. That’s what retirees should prepare for. Higher inflation reduces the purchasing power of money and causes retirees to deplete their savings faster.

All of these factors make it difficult to create a universal rule of thumb for retirement savings. While some people may be comfortable in retirement on less than $1 million, others need much more.

Among all the factors above, inflation may be on many people’s minds today. Prices over the past year have risen at a rate not seen in his 40 years, which could mean retirement savings aren’t as good as they otherwise would have been.

“Retirees may need to withdraw more from their retirement accounts just to pay for living expenses,” Taibi says. “

But there is good news for young workers. “What we are experiencing now is not sustainable in the long term,” says Fogas.

Over the course of a career, years of high inflation like 2022 are offset by years of low inflation like 2015, when the average annual inflation rate was near zero. “The average inflation rate over the long term is he 3% to 3.5%,” she said. As long as workers count that level of inflation into their savings goals, they should be well prepared for retirement as far as rising costs of living are concerned.

Rather than relying on rules of thumb to determine retirement savings, financial planners advocate a more nuanced approach. “I think we need more personalized numbers,” he says, Taibi.

In short, to decide how much to save for retirement, you need to do the following:

Retirees should try to include small items such as gifts, vacations, and home décor in their calculations. , all expenses must be considered.

When setting your retirement goals, you should also take into account how many people plan to withdraw from the retirement fund each year. One common rule of thumb is to withdraw 4% each year from your retirement allowance. 4% of $1 million provides $40,000 in retirement spending each year. If you can’t imagine living on $40,000 a year and Social Security, now is the time. Rethink your savings goals.

“In years of high inflation and low stock markets, retirees and individuals nearing retirement may have to make the difficult choice to work a little longer, go back to work, spend a little less, and put off expensive items. Hmm,” says Taibi.

If all this is overwhelming and confusing, financial expert A person who specializes in retirement planning. They have both the experience and the software to do the calculations on behalf of their clients.

A million dollars may seem like a lot of money, but the compounding return you get from investing means it’s within the reach of even those with relatively low incomes.

“For young people, it’s very easy. Just do it,” Fogas advises.

Young workers with relatively low spending should prioritize retirement savings before excess cash is lost on life events such as marriage, children and home ownership. Some employees also have the option of a professionally managed 401(k) account. There are no guarantees, but a well-managed account may offer better returns balanced with an appropriate level of investment risk.

If you’re 25, you’ll need to save about $400 a month to reach a $1 million balance by age 65. It may seem like a lot, but workers with a 401(k) may receive automatic contributions to their retirement plan from their employers.many companies also Matching employee donationsBoth can be quickly added to your retirement savings.

However, compound interest has its limits. “If he had waited until his 50s to start saving, it probably wouldn’t be so viable,” he says Ozanne. “My advice to anyone who hasn’t started yet is to moderate your expectations.”

Other Strategies to Increase Your Savings This includes minimizing taxes, cutting expenses, and looking for low-fee investment options. No matter how he achieves his goals, with careful planning and expert guidance, he may be able to pull off $1 million or more after decades of retirement.