One million dollars is a lot of money for most people and you might be hoping to retire with that amount in the bank. But how long will $1 million last in retirement? The answer can depend on the age at which you retire, your life expectancy and the kind of lifestyle you plan to live. For some people, $1 million may be more than enough for a comfortable retirement but for others, it might not be enough. Talking to a financial advisor can help you figure out your target retirement savings number.
Can You Retire With $1 Million Dollars?
Financial experts have long recommended $1 million as a benchmark number to hit when it comes to retirement savings. While it’s certainly possible for someone to retire with $1 million, there are some factors that can make that more difficult to do. Here are some of the potential roadblocks that could make retiring on $1 million challenging.
- Inflation: Inflation can be a threat to your retirement savings because it shrinks your purchasing power. When inflation is low, that’s less concerning but when prices spike, that means your money doesn’t go as far. If inflation remains above the 2% benchmark that the Federal Reserve aims for, that could cause you to run through your $1 million in retirement savings faster than you anticipated.
- Healthcare costs: Healthcare can become one of your largest expenses as you age. While Medicare can help reduce the financial burden, it doesn’t pay for everything. If you’re shelling out significant amounts for co-pays or prescription drugs or you require long-term care, that could easily drain your retirement nest egg.
- Social Security: Social Security benefits can supplement $1 million in retirement savings, but there are increasing concerns over how much money future retirees will be able to receive. Aside from that, Social Security’s cost of living increase doesn’t always keep pace with the inflation rate. Again, that can diminish your purchasing power when inflation remains high for longer periods.
How Long Will $1 Million Last in Retirement?
There is no single answer to this question as it depends largely on your personal situation. There are several important factors to consider that can determine whether $1 million is enough to save for retirement or whether you might need to set your goal a little higher.
- Retirement lifestyle: How you plan to live in retirement can be a significant predictor of how long your money will last. If you plan to practice financial minimalism and live a pared-down lifestyle, then your money should stretch further. On the other hand, if you plan to take up traveling full-time or invest in an expensive purchase like a boat or RV, then you might run through your savings faster.
- Retirement age and life expectancy: Your retirement age and how long you expect to live in retirement matter when deciding how much of your savings to draw down annually. If you retire at 60 and expect to live to age 90, for example, you’ll need to plan your withdrawals so that you don’t run out of money too soon.
- Health: Staying healthy in retirement can be a boon financially if you’re spending less of your savings on medical care. On the other hand, if you have a chronic condition that requires regular treatment, develop a terminal illness or require long-term nursing care, a larger share of savings may go to expenses not covered by Medicare. Or you may have to resort to spending down assets in order to qualify for Medicaid, which can pay for long-term care.
- Risk tolerance and risk capacity: Risk tolerance means how much risk you’re comfortable taking to achieve your savings goals. It’s different from risk capacity, which measures how much risk you must take to reach those goals. If you have a high-risk capacity but a low-risk tolerance, that can impact the rate of return your investments earn once you retire.
- Cost of living: Your cost of living can directly affect how long $1 million will last in retirement. Living in an area with a higher cost of living can inflate your retirement budget, causing you to have to spend your savings at an accelerated rate. Choosing an area that’s less expensive can help you to preserve your savings longer.
- Social Security timing: Social Security benefits can help $1 million last longer in retirement if you’re less reliant on those savings to cover expenses. How much you receive from Social Security can depend on your earnings during your working years and the age at which you begin taking benefits. Taking Social Security at age 62 can reduce your benefits while delaying them until age 70 can increase the amount you receive.
How Long Will $1 Million Last in Retirement Examples
It’s hard to put an exact number on how long $1 million will last in retirement since everyone’s situation is different. Running some different scenarios through a retirement calculator can help you estimate how long your money should last.
- Example #1: You have $1 million in savings and earn a 6% annual return. Assuming you’re in the 24% tax bracket and withdraw $5,000 per month, your savings should last just over 30 years.
- Example #2: Your $1 million in savings earns a 5% annual return. With the same tax bracket and monthly withdrawal amount, you’d run out of money in 26 years.
- Example #3: You earn a 7% annual return, but you’re in the 32% tax bracket and withdraw $6,000 a month from your savings. At that pace, you’d have enough savings to last 23 years.
These examples don’t take inflation into account or annual increases in your withdrawal rate. They also don’t consider any changes to your federal tax bracket. However, they can give you a basic idea of how much $1 million will last in retirement depending on what you pay in taxes and how much you spend.
How to Save $1 Million for Retirement
Saving $1 million for retirement can take time and the sooner you get started, the better. Regardless of where you are on your savings journey, these tips can help you get closer to the $1 million mark.
- If you have a 401(k), contribute at least enough to get the full employer matching contribution if offered.
- Consider increasing your contribution rate annually to coincide with any pay raises you receive.
- Open a Roth IRA if you’re eligible so you can make tax-free withdrawals in retirement while avoiding required minimum distributions.
- Max out your Health Savings Account if you have access to one through a high-deductible health plan.
- Save tax refunds or other financial windfalls you receive.
- Invest in a taxable account, keeping your risk tolerance and risk capacity in mind.
- Review retirement and investment accounts annually to see how much you’re paying in fees and where you might be able to lower those costs.
- Consider tax-advantaged investments such as municipal bonds, which are exempt from federal taxes.
- Choose investments that are less susceptible to inflation, such as real estate or Treasury Inflation-Protected Securities (TIPS).
Those are just some of the strategies you might use to save $1 million or more for retirement. Talking to a financial advisor can help you fine-tune your plan and maximize your savings during your working years.
How long will $1 million last in retirement? The best answer is as long as you need it to.
Understanding the factors that can affect how long your savings will last and how much you actually need to save can help you plan for retirement more effectively.
Retirement Planning Tips
- Mapping out a retirement strategy can take time and you may benefit from having a helping hand. A financial advisor can review your financial situation and goals, then work with you to develop a plan for reaching them. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Purchasing a long-term care insurance policy can help you hold on to more of your savings should you need nursing care later in life. You might also consider a hybrid policy that combines long-term care coverage with life insurance. If you remain healthy and don’t need to use long-term care benefits, the life insurance portion of your policy will still pay out a death benefit to your beneficiaries.
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