Do you need a million dollars to retire? Lisa asked this question.
For some reason, people are fixated on this big round number. Some people will need at least that much if not more. Others will be able to make it work with less—sometimes much less.
We’ll talk about the factors which determine the answer to the “how much” question. And we’ll give you a brief example of how much income a $1,000,000 nest egg can provide.
Video: Do You Need a Million Dollars To Retire?
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Many People Think You Need That Much
For some reason, this million-dollar figure has become a target for people. TD Ameritrade recently announced the findings of their Retirement Pulse Survey. To retire comfortably:
- 59% of millennials think they will need a million dollars
- 56% of Generation X believe they will need a million bucks
- 58% of the Baby Boomers believe they will need a million dollars.
So nearly 6 out of 10 think this big round number is what you’ll need.
But Do You Really Need A Million Dollars?
The best answer is, “it depends.” For some of you listening, the answer is an emphatic “yes!.” You will need that or more. For others, you won’t need that much to make it work. In fact, we see a lot of people make it work on much less than a million dollars.
The real answer to the “how much” question depends on a few factors.
How Much Income Will Social Security Replace?
Social Security benefits are progressive. Those payments will replace a higher percentage of earnings for people who earn less. So the more you make while you are working, the more you will need to save.
How Much Will You Spend in Retirement?
Your spending matters. If you have a modest lifestyle, don’t have debt, and don’t have big expenses, you can make it work with a smaller nest egg. The bigger your lifestyle, the more savings you will need.
What Do You Want To Do In Retirement?
If your plans call for a lot of travel and adventure, it probably means you need a bigger nest egg.
How old are you right now?
The further away retirement is, the bigger the number you should plan for. If Lisa is 60, she may not need a million bucks. If she is 30, she might need well over that amount.
How Much Income Will $1,000,000 Provide?
We believe in the 4% rule. This means a million-dollar nest egg will generate about $40,000 per year, before taxes. That’s about $3300 per month. And the tax part is important. Many of us have tax-deferred accounts like IRA’s or 401k’s which will be taxable income.
You can push it a little, but when you do, you start to increase the risk of running out of money.
But remember, you’ll also likely have Social Security to produce income too. Most of us won’t rely solely on our savings.
So do you need a million dollars to retire? It’s an interesting question. It’s one that stresses the need to create a plan for your future.
You may find you can make it work on far less. Or you may find you need at least that much if not more.
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About the Author
Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors He typically works with people who are planning for retirement. Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio. Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.