Is $1 Million Enough To Retire?
Is $1 Million Enough To Retire?
Do you have $1 million today and planning to retire very soon?
Wondering if this is enough to sustain all your daily needs?
First of all, I’d like to congratulate you for being really good at saving money for retirement since there are only around 25% of people in the U.S. who have $200,000 and more in their retirement savings while there are around 54% people who only have $0-$5000 dollars on their retirement savings. So, having retirement funds of $1 million is considered to be a bit exceptional.
The ultimate question is, how long can you live with $1 million? Can you live forever without running out of money?
Let’s find out from one of the reliable resources of the data analysis.
How Long Does $1 Million Last?
Data analysis site How much analyzed and reported how long does a 1 million dollar can last in every U.S. state. The results might not be favorable if your retirement plan was basking a tropical paradise like Hawaii.
Otherwise, if you’re just planning on a short retirement, then let’s see how long does your 1 million dollars last in Hawaii or in other parts of United States.
Looking closer to the image above, it shows that your $1 million can stretch about twice as far in Mississippi as it can in Hawaii.
Likewise, your $1 million can stretch up to 25 years in Arkansas while it can only stretch up to 15 years in California.
Top 5 Friendly States for Retirement
- Mississippi – $1 million lasts 25 yrs 6 months
- Arkansas – $1 million lasts 25 yrs
- Tennessee – $1 million lasts 24 yrs 5 months
- Kansas – $1million lasts 24 yrs 5 months
- Oklahoma – $1million lasts 24 yrs 4 months
Top 5 least Friendly States for Retirement
- Hawaii – $1 million lasts 13 yrs 1 month
- District of Columbia – $1 million lasts 14 yrs 2 months
- California – $ 1million lasts 15 yrs
- Oregon – $1 million lasts 16 yrs 7 months
- New York – $1 million lasts 16 yrs 7 months
Feeling blue after seeing the numbers? Don’t worry there’s always a way out.
How Much Money Do You Really Need To Retire?
Keep in mind that your retirement income is limited to 3 sources: employment, government pensions, and personal investments.
To meet your lifestyle expectation, structure your retirement according to the Cost of Living Index of your State. This way, you’ll come up with good yields and competitive monthly payouts that can guarantee a retirement where you live on your own terms.
So, the means the real amount of money you need in order to retire comfortably will be based on different factors that you yourself can make adjustments with.
Why $1 Million?
But why say $1 million? As conventional wisdom, there are a lot of financial experts pointing out that you need around $1-$1.5 million or 10-12 times of your income before you retire.
For instance, if you’re earning $100,000 a year, then you need at least $1million or $100,000 X 10 for retirement.
These numbers are creating panic, denial, and dread to the majority of people who are nearing retirement.
But a true retirement number is different for everyone. According to Dan Yu, managing principal at EisnerAmper Wealth Advisors, it depends on a lot of factors such as where you’ll live and how healthy you’ll be as you age. Plus, the most challenging of all — how long will you live?
The truth is: while there’s no magic number you should strive to attain, there are some questions you should ask yourself to determine your optimal “number” for retirement.
What Will Your Costs-Of-Living Be?
As a rule of thumb, you need 70 to 80 percent of your pre-retirement income after you finish working. So, the first step is to figure out how much your regular expenses are today. Start by creating a budget to track your spending habits as well as your fixed and variable expenses.
Unfortunately, some experts, like Yu, advises clients to have at least 100% of the pre-retirement income at least the first 10 years after they stop working. According to him, spending really doesn’t slow down in early retirement as many new retirees ramp up travel etc.
The good thing is – you get to decide what kind of lifestyle you will be having when you retire. For instance, ERE retirees are spending just 20% of their income in order to sustain their extremely simplified lifestyle. This concept will ensure their money can last forever.
Can Your Nest Egg Last As Long As You Will?
Longevity is something many people don’t consider when they set savings goals. According to several studies “People are living a lot longer today“. Yu says this longevity makes retirement planning more challenging than ever.
For instance, a healthy upper-middle-class couple who are age 65 today has a 43% chance that one or both partners will live to see 95. So, retirement savings need to be adjusted accordingly.
Can Your Savings Generate Enough Cash?
There is no sure way to predict how the market goes every day. Even experts can lose trades and investments in the stock market since nobody can 100% predict whether the market will be bullish or bearish in a certain period of time.
The same applies when it comes to interest rates – and inflation – in future years. For instance, if you have $50,000 as our pre-retirement income, then your ideal retirement income or payout according to experts should be $40,000. Calculating backward, you need a principal of around $1.8 million to support a 30-year – using average returns of 6% and inflation rate at 2.5% according to Morningstar, a Chicago-based investment-research.
What To Do If You Haven’t Saved Enough?
The worst feeling one could ever have is guilt and helplessness. If you are already 60 years old today and your retirement is literally at $0- then try considering the ERE saving concept. This movement aims to achieve retirement in 5 years by saving and investing 80% of your income while spending only 20% of your total income.
Whether you like it or not, if you haven’t saved enough money for your retirement, you’d have to live very tight when you reach the retirement age or continue working for the rest of your life. So, better get prepared as soon as possible.
The bottom line is that you need to save as much as you can according to your age and your desired lifestyle when you finish working. Save, save, and save. Savers can double, on average, their nest eggs in the last decade or so of their working lives – thanks to the magic of compounding interest.
Do you have 2 cars? Then consider getting rid one of them or both. Do you travel a lot? Then cut back on your travel expenses as soon as possible.
If the market delivers a historical 7 % annually, your money doubles every decade. So, you better start saving and investing as much as you can now.
Let’s face the truth that there are 85% of people around the world who literally hate their job and want to retire as soon as possible. Plus, there are at least 54% of people who only have $0-$5,000 for their retirement.
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This is the end of my “Is $1 Million Enough To Retire“. I hope you have learned more with this post and you can make better decisions in your personal finances.
If you have any thought or question, please don’t hesitate to leave a comment below. Good luck with your journey to financial freedom online. God bless!