The answer to this million dollar question is – it depends. And, considering that the average baby boomer has only socked away about $50,000, it might be a bit of an academic question. Nevertheless, we speculate a lot of people are curious about the answer.
If you take the usually noted figure of 4% a year that can be safely taken out of the $1 million, you get $40,000 per year. No matter how much you have saved, experts agree that a 4% withdrawal rate will let you take money out for 30 years with only a slight danger of running out of money. If you get a pension or social security you could add that income on top of the $40,000 (the average SS payment to adult beneficiaries is $1110/month – with no COLA in 2011).
The major “it depends” question is – how expensive is your lifestyle? If you expect to live in 2 homes, drive nice cars, and travel extensively – you aren’t going to make it with just $1 million socked away. Some experts believe that retirees only need about 65% of their pre-retirement income to live comfortably, since expenses like commuting and work clothes decline or disappear, and senior discounts and tax breaks kick in. Others, however, are not so sure about that. Health care expenses and insurance in particular, can go up (most people underestimate those). If you expect to take some long-delayed trips or travel back and forth to visit grandchildren or friends, your travel expenses might be higher than you thought. Michael Farr, author of “A Million Is Not Enough: How to Retire With the Money You’ll Need“, quoted in a recent US News article, believes that $1 million would not be enough. His main point is that by the time 30 years of inflation are considered, the retiree’s actual purchasing power would be significantly eroded.
A second “depends” is – who are you going to ask. While Mr. Farr is pessimistic on the question, Jonathan Ponds, author of “You Can Do It! The Boomer’s Guide to a Great Retirement“, thinks as little as $100,000 – $200,000 should be enough for most retirees. He subscribes to the theory that retirees only need 65% of their previous income, and that social security will pick up quite a bit of the slack.
Who to Believe – What to Do?
The question of having enough money to live in retirement is a crucial one. So it is worth doing your homework on. To answer this question yourself, you need to prepare a post-retirement budget. Put down all your expenses, and then your expected income (there are budget worksheets available on the internet). Webtools like FIRECALC will help you in the process. If there is a mismatch, you better work on either the expense side or the income side, maybe both. See our “What is Your Number” article for more.
For further Reference:
Baby Boomers Essential Links
What do You Think?
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