Is $1 Million Enough to Retire?

Reaching $1 million in retirement savings has long been viewed as an important financial milestone.

But if you're approaching retirement with $1 million saved, you may be asking a much more important question:

Is $1 million actually enough to retire?

For some people, it may be more than enough. For others, it may not be.

The answer depends less on the number itself and more on what that money needs to provide throughout your retirement.

How Long Can $1 Million Last in Retirement?

There isn't one answer because retirement looks different for everyone.

Someone who retires at 65 with relatively modest expenses, a paid-off home, Social Security income, and perhaps a pension may place very different demands on a $1 million portfolio than someone who retires at 60 with a mortgage and higher monthly expenses.

How long your savings may last can depend on factors such as:

• Your retirement age
• Monthly living expenses
• Social Security benefits
• Pension or other predictable income
• Housing and debt
• Health care expenses
• Taxes
• Inflation
• Investment performance
• Withdrawal amounts
• Unexpected expenses
• How long your retirement lasts

That's why simply knowing your account balance doesn't tell you whether you're ready to retire.

Is $1 Million Enough to Retire at 60?

Retiring at 60 can potentially mean funding a retirement lasting 30 years or longer.

It may also mean waiting several years before certain other sources of retirement income become available.

Social Security retirement benefits generally cannot begin until age 62, and Medicare eligibility generally begins at age 65 for most people.

That means someone retiring at 60 may need to think carefully about how they'll cover living expenses and health insurance during those early retirement years.

The earlier you retire, the longer your savings may need to support you.

Is $1 Million Enough to Retire at 65?

Retiring at 65 presents a different picture.

At that point, Medicare may help address health insurance needs for many retirees, and Social Security may already be available.

But even at 65, the question remains:

How much income will you need each month, and where will it come from?

Someone who needs $3,000 per month from personal savings has a very different situation from someone who needs $7,000 per month.

The same $1 million can therefore produce very different retirement outcomes.

Start With Your Monthly Retirement Expenses

Rather than beginning with your savings balance, start by estimating what retirement may actually cost.

Consider essential expenses such as:

• Housing
• Utilities
• Food
• Transportation
• Insurance
• Health care
• Taxes

Then add discretionary expenses such as travel, entertainment, hobbies, gifts, and other activities you hope to enjoy.

This provides a more realistic estimate of the income your retirement lifestyle may require.

How Much Predictable Income Will You Have?

Next, consider income you may receive without having to withdraw it directly from your retirement savings.

Depending on your circumstances, that may include:

• Social Security
• Pension income
• Annuity income
• Other predictable sources of income

For example, if your anticipated retirement expenses are $6,000 per month and predictable income covers $4,000, your savings may need to provide the remaining $2,000.

That is a very different situation from needing your savings to provide the entire $6,000.

Understanding that income gap can be more useful than focusing solely on your total account balance.

Don't Forget About Inflation

A dollar today may not have the same purchasing power 10, 20, or 30 years from now.

Even relatively modest inflation can increase the cost of groceries, utilities, travel, services, and other expenses over a long retirement.

Your retirement strategy should therefore consider not only what your lifestyle costs today, but how those expenses may change over time.

Health Care Can Be a Major Retirement Expense

Health care is another important consideration.

Medicare can provide valuable coverage for eligible retirees, but it does not necessarily cover every health-related expense.

Premiums, deductibles, copays, prescription medications, dental and vision expenses, and potential long-term care needs may all affect retirement spending.

Planning for health care costs can help provide a more realistic picture of how much retirement income you may need.

What Happens When the Market Declines?

Retirement introduces another challenge: you may be withdrawing money from your accounts while markets fluctuate.

A significant market decline early in retirement can be particularly important because you may need to sell investments while account values are lower to fund living expenses.

That's one reason many retirement strategies consider how much money should remain invested for potential growth and how much income should come from more predictable sources.

Turning $1 Million Into Retirement Income

Accumulating $1 million is one achievement.

Turning that $1 million into income that may need to last for decades is another.

For many retirees, retirement income may come from several sources working together:

Social Security + pensions + retirement savings + other income sources

Some individuals may also consider annuities as part of a retirement income strategy because certain annuities can provide guaranteed income, subject to the claims-paying ability of the issuing insurance company.

The appropriate strategy depends on your individual circumstances, objectives, and financial situation.

The Bigger Question Isn't “Do I Have $1 Million?”

A better question may be:

What does my $1 million need to do for me?

Does it need to cover nearly all of your living expenses?

Or will Social Security and other predictable income cover most essential expenses?

Do you plan to retire at 60 or 70?

Will you have a mortgage?

How much do you want available for travel and other goals?

And how long might your money need to last?

Those questions can tell you much more about retirement readiness than an account balance alone.

So, Is $1 Million Enough to Retire?

Maybe.

The answer is personal.

For some households, $1 million combined with Social Security and other income sources may support the retirement lifestyle they envision. For others, higher expenses or a longer retirement may require more.

The goal isn't necessarily to reach a particular number.

It's to understand whether your income, savings, expenses, and retirement goals work together.

Want to See Where You Stand?

Take the CDA Retirement Checkup for a quick look at your current retirement picture, or schedule a consultation with CDA of America to discuss your retirement income goals.

CDA of America provides insurance and retirement education. Information presented is for general educational purposes and should not be considered individualized financial, investment, tax, or legal advice.