How to Retire With $2 Million

For years, $1 million was considered the gold standard for retirement savings. But with longer life expectancies, rising healthcare costs and the ongoing impact of inflation, that target may no longer provide the financial security many retirees expect. For today’s savers, aiming for $2 million could be a more realistic and necessary goal to maintain the lifestyle they want throughout retirement. Here’s what it takes to retire with a $2 million nest egg, along with the planning and strategies required to get there.

A financial advisor can help you evaluate your options and consider how different strategies may fit your retirement goals. Connect with an advisor for free.

How to Retire With $2 Million

If you want to retire with $2 million or more to your name, there are certain things you’ll need to do to make it happen. Otherwise, you may fall short of your goal. Here are some of the most important things to keep in mind as you map out your retirement savings strategy.

1. Estimate Your Retirement Budget

The first step in saving $2 million for retirement is determining whether that’s an appropriate number to aim for, based on what you plan to spend later. Creating a hypothetical retirement budget can help you estimate what you’ll spend year to year and what your target retirement withdrawal rate should be.

Your retirement budget should include the normal costs of living, including:

Housing
Utilities
Food
Transportation
Healthcare
Travel

But you may also need to include any money you plan to spend to maintain a certain lifestyle. For example, that might include travel expenses or money you spend on hobbies.

Also, consider where debt fits into your retirement budget. If you want to retire with $2 million and no debt, then you’ll have to figure out how much you can save and how to pay down debt aggressively during your working years.

2. Consider Your Timeline

Once you have a retirement budget in mind, the next step is breaking down your $2 million savings goal. This is as simple as estimating how long you have to save, based on your current age and when you hope to retire. For example, if you’re 25 now and want to retire at 65, you’d have 40 years to save and invest. You would need to grow your portfolio by $50,000 per year on average. This includes the money you contribute directly and the earnings on your investment portfolio.

If you’re getting a late start, say at age 35 instead, you’ll need to decide whether retiring at 65 with $2 million is a realistic goal. Having 30 years to save means you’d need to increase your portfolio by $66,666 a year on average. If you don’t think you can do that at your current savings rate and rate of return, then you may need to consider waiting until 70 or 75 to hit the $2 million mark. Or consider adjusting your goal downward to $1.5 million or $1 million. Which will also mean adjusting your lifestyle accordingly.

Our retirement calculator can help you get an estimate and see if you’re on track.

3. Use Tax-Advantaged Plans

Tax-advantaged plans are the first place you may look to start saving for retirement. If you have a 401(k) plan at work and you want to save $2 million for retirement, maxing out contributions each year could help you get there. If your plan includes an employer matching contribution, that’s free money that you can add to your retirement savings.

After 401(k) or similar plans, you might consider an individual retirement account next. Whether it makes sense to choose a traditional IRA or a Roth IRA can depend on your current tax situation and where you expect to be tax-wise in retirement.

If you’re in a higher tax bracket now, you might find the deduction allowed for traditional IRA contributions valuable. Of course, this depends on whether you expect to be in a lower tax bracket when you retire, at which time you’d have to pay taxes on withdrawals from your IRA.

On the other hand, a Roth IRA may make sense if you expect to be in a higher tax bracket in retirement. With $2 million or more in savings, your taxable income could remain elevated, depending on your annual withdrawal strategy. In that situation, tax-free withdrawals from a Roth IRA may provide greater flexibility.

4. Invest in Stocks With an Online Brokerage Account

Contributing to a workplace retirement plan or IRA is a starting point, but you may need to expand your investment options to reach your $2 million retirement goal. Opening an online brokerage account allows you to continue building your portfolio, beyond the annual contribution limits for tax-advantaged plans.

You can use a brokerage account to invest in stocks, mutual funds and exchange-traded funds. Some brokerages also offer bonds, futures and even options if you’re looking for more ways to diversify.

Investing in stocks is particularly important if you’re trying to retire with $2 million, as they offer the best potential for growth compared to other investments. Stocks are riskier, but the longer your time horizon is for investing, the more time your portfolio has to recover from periods of volatility.

When choosing an online brokerage, be sure to pay attention to the investment selection as well as the fees you’ll pay to trade. Ideally, the brokerage you choose offers commission-free stock and ETF trades, allowing you to keep more of your returns.

5. Increase Your Savings Rate Each Year

Saving 10% to 15% of your income is a commonly accepted rule of thumb for retirement planning. But saving that amount may not be enough if you’re trying to reach $2 million in assets by the time you retire. Instead, you may need to save 20%, 30% or even more of your income to hit the target.

If you can’t afford to invest that much of your income now, you can increase your savings rate year to year. For example, if you’re saving in a 401(k) and you get a 2% pay raise each year, you can divert that extra 2% to your retirement account. Or as you pay off debts, you can redirect the money you were using for those payments to your online brokerage account.

Why Retire With $2 Million?

At first glance, $1 million might seem like plenty, especially if you envision a modest retirement lifestyle. Downsizing your home, reducing discretionary spending and maintaining good health can all help stretch your savings. And with supplemental income from Social Security, a pension or an annuity, it’s easy to assume $1 million will cover your needs.

However, several factors beyond your control could quickly erode those savings:

Healthcare costs: A serious illness or the need for long-term care can dramatically increase expenses. Without long-term care insurance, the cost of a nursing home or assisted living facility could consume a significant portion of your retirement savings.
Inflation and market volatility: Even modest inflation reduces purchasing power over time. If rising prices are coupled with market downturns that impact your investment returns, your nest egg may not last as long as anticipated.
Longevity: People are living longer than ever. Reaching age 90, 95 or even 100 is increasingly common. The longer your retirement lasts, the greater the financial demands on your savings.

Given these challenges, aiming for $2 million, or even more, can provide a larger cushion. It offers greater flexibility to handle unexpected expenses, market fluctuations and the rising costs that come with a longer retirement.

Frequently Asked Questions (FAQ)

How much income can $2 million generate in retirement?

A commonly referenced retirement guideline calls for taking an initial withdrawal equal to 4% of your investment portfolio and then increasing that dollar amount each year to account for inflation. Using that framework, a $2 million nest egg could provide approximately $80,000 per year before taxes at the outset of retirement.

How much do you need to save each month to reach $2 million?

The monthly amount required depends on your time horizon and expected rate of return. For example, saving $1,000 per month for 40 years with a 7% annual return could grow to over $2 million. If you start later, you may need to contribute significantly more each month to reach the same goal.

What accounts should you use to save $2 million?

Tax-advantaged accounts such as 401(k)s, 403(b)s and IRAs can help accelerate retirement savings through tax deferral or tax-free growth. Once contribution limits are reached, a taxable brokerage account can provide additional flexibility and investment capacity.

Bottom Line

Retiring with $2 million can increase your financial security tomorrow if you’re willing to put in the effort to save and invest today. Whether you can retire with $1 million, $2 million or more can depend on the details of your financial situation. You may find it best to work with a financial advisor who can help make you an individualized plan that will work for your finances.

Tips for Retirement Planning

Consider talking to a financial advisor about strategies you can use to save $2 million for retirement. They can make a difference in helping you create a personalized retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. 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.
As you approach retirement, consider gradually adjusting your asset allocation to reflect your time horizon and income needs. Shifting a portion of your portfolio from growth-oriented investments toward a mix that includes income-producing and lower-volatility assets can help manage market risk while still supporting long-term growth.