Is $1 million enough to retire on?

[daledale]

Whenever I hear people talking about retirement, they always say they want $1 million for retirement. My question is, is that really enough money? I know it sounds like a lot, but if you are only earning 2% interest on it, that means you are only able to spend $20,000 a year or you'll eat into it and then earn even less the next year in interest. Is $1 million enough these days?

[Petunia 100]

Whenever I hear people talking about retirement, they always say they want $1 million for retirement. My question is, is that really enough money? I know it sounds like a lot, but if you are only earning 2% interest on it, that means you are only able to spend $20,000 a year or you'll eat into it and then earn even less the next year in interest. Is $1 million enough these days?

Some people live on less than that, some on much more, so it really depends. Also, don't forget about SS benefits and other possible income (pensions, rentals).

BTW, I certainly do not plan to try and live on bank account interest. I will keep my money invested in a diversified mix of stocks and bonds my entire life.

[ua_guy]

In planning for my own retirement, I had to really think hard about what I want life to be like when I get there.

Will I have a paid off home that I can continue to live in?
Will someone else be living with me? What if not?
What do I want to do during retirement? What goals will I want to accomplish?
How do I live now, and will I want the same lifestyle during retirement?
What do I think about the overall market, and where things are eventually headed?

Answering some of those questions and planning for different scenarios locked me into a target savings goal. So, 30 years out, I'm aiming for that.

If you're not far from retirement, you might try to reverse-engineer the savings you already have and determine what life needs to look like from here on out. Or maybe there's still time left to save. What needs to be changed?

I can't answer if $1 Mil is enough for you to retire on. Yeah, a person can get by. But can you?

[daledale]

)BTW, I certainly do not plan to try and live on bank account interest. I will keep my money invested in a diversified mix of stocks and bonds my entire life.

What is your contingency plan if the stock market tanks one year and you lose 25% of your retirement?

[rennigade]

What is your contingency plan if the stock market tanks one year and you lose 25% of your retirement?

Hence the diversified portfolio. If you're close to retirement or retired...you shouldnt ever be in a position to lose 25% of your portfolio due to the market.

[Petunia 100]

What is your contingency plan if the stock market tanks one year and you lose 25% of your retirement?

That will probably happen at least once while I am retired. I will rebalance to my target asset allocation and take my annual withdrawal. I will do the same when the stock market is up.

[Nika]

What is your contingency plan if the stock market tanks one year and you lose 25% of your retirement?

Don't draw on it while the market is 25% down. In the long run, it will recover. The trick is not to have to sell assets at the bottom. So if a bad year or two happens, hanker down and live on social security and spend as little as possible for that "tanking" period, to avoid locking in losses. Get a part time job maybe. Have fun and go live somewhere cheap, life Vietnam or Philippines or Ecuador for 6 month. Take in a foreign student... If this is temporary for a year or so and will help you preserve your portfolio...

When we retire, I plan to be investing in stock market almost as aggressively as now, at least in early years of our retirement.
I also plan to have paid off place to live (hopefully in NYC, in which case I could rent it out if need be and go live for half of what I get for it some place else for a year or two if I so fancy). Two pensions, and high-earner social security (what-ever it may be). Those things should help up make it through a market downturn.

That risk of temporary loss of 25% of your portfolio is better than guaranteed loss of more than 50% of your purchasing power that will happen if you just leave the money in a savings account for 20 years.

[tripods68]

Whenever I hear people talking about retirement, they always say they want $1 million for retirement. My question is, is that really enough money? I know it sounds like a lot, but if you are only earning 2% interest on it, that means you are only able to spend $20,000 a year or you'll eat into it and then earn even less the next year in interest. Is $1 million enough these days?

Your lifestyle will depend whether 1 million is enough. Most people that reach that magic number will see a different lifestyle, attitude, and new perspective because it is a standard number that everyone compare themselves. But with proper family budgeting plan, and conservative spending habits, 1 million is achievable especially if you include your home value/equity.

For us, 1 million is doable with 2 pensions collecting at age 55 years old + 403(B) & 457 retirements, plus two ROTHs and paid off home. Certainly not carrying any debt include + a mortgage only accelerate this process.

[JoeP]

First of all, do you mean $1M in post-tax dollars sitting safely in a savings account? Do you mean $1M in investment value, subject to market fluctuation, withdrawal fees, and taxes? Do you mean $1M in net worth?

A lot has to do with your projected standard of living, and what you want to do (e.g., travel) in retirement. I know several people near retirement age who have downsized their house and moved to areas with lower taxes. This makes sense to me because it usually simplifies a bit, reduces energy usage, and takes some of the pressure off so that retirement dollars go further.

[disneysteve]

My mom is 84. She has about 250K in savings and investments and lives just fine with earnings from that and social security. She wouldn't know what to do with a million dollar portfolio. She has what she needs.

Is $1 million enough? It is if you have a lifestyle that doesn't need more than the earnings from that and social security to cover expenses you'd be all set. That probably describes the vast majority of current retirees.

[richard johnson]

The million-dollar retirement goal gets a lot of attention. Remember, though, that personal finance is more personal than it is finance. Seeing one’s nest egg add another decimal place on the calculator may satisfy an emotional need, but there’s really no magic to it. A million is more than enough for some while lacking for others. The better question: What number works for you?

[rennigade]

Was at the gym the other day and saw a McLaren F1 parked. A million doesnt even buy that car. I backed away slowly. A million wouldnt be enough to retire for the owner of that piece of art.

[snafu]

The research suggests retirees needs and costs change each decade. The 1st 10 years are filled with activities, travel, home upgrades and carrying out plans. The 2nd decade revolves around home and health. Many downsize to condo, smaller sf, less maintenance more family and friends. The 3rd decade seems to be about health and whether they need assisted living. The more care needed the more costly.

[daledale]

The research suggests retirees needs and costs change each decade. The 1st 10 years are filled with activities, travel, home upgrades and carrying out plans. The 2nd decade revolves around home and health. Many downsize to condo, smaller sf, less maintenance more family and friends. The 3rd decade seems to be about health and whether they need assisted living. The more care needed the more costly.

If this generation is going to live another 10 years beyond the last generation and still expects to retire at the same time, then those numbers are going to go up and the $1 million might not even be close to enough.

[elessar78]

Whenever I hear people talking about retirement, they always say they want $1 million for retirement. My question is, is that really enough money? I know it sounds like a lot, but if you are only earning 2% interest on it, that means you are only able to spend $20,000 a year or you'll eat into it and then earn even less the next year in interest. Is $1 million enough these days?

You should try using a "drawdown calculator"

I'll make a couple of assumptions, such as earning 2% interest and 3% inflation. Let's also assume that this individual with 1M in the "bank" will not add any more to it and will be in retirement for 30 years. Also assume that this person want's zero dollars left on the day they pass away.

Basically, your withdrawals will be interest PLUS some principle.

So in the scenario above, the first withdrawal let's call the year 2016 will be for $28,833 (interest plus some principle). In 2026 it's for $38,750. In 2036, $52K and finally in 2045 it's $68K. In the final year, the ever-drawn down principle will be only $132K of the orig $1M and only earned $1,332 in interest.

If your cost of living is low enough, then I think you can retire on $1M