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How Much Do You Need to Retire – Is Even $1 Million Enough?

Category: Financial and taxes in retirement

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?
Give your fellow Topretirements members the benefit of your opinion. Just use the Comments section below.

Posted by John Brady on October 18th, 2010


  1. There are way too many variables to consider. However, most “average” people don’t save nearly enough money to retire comfortably. If you are fortunate to get a decent pension or your company offered a defined benefit plan, you may need to save less on your own for retirement. However, I would think you would need the equivelent of more like a 1.3 to 1.5 million dollars. Using the rule of thumb convention of 4% (mentioned above) that would equate to about $56K to $60K a year. Of course, one has to examine their own lifestyle and what they really need. Moving to a less costly part of the country is also a major consideration. Having lived in the metro NY area up until recently, I’ve saved quite a bit just in real estate taxes alone by moving to a lower taxed state (NC). Most people also tend to be WAY too conservative with their savings and investments. You really need to invest more aggressively and can’t simply stick your money in a bank or only rely on bonds. Your not even keeping pace with taxes and inflation by doing that. The stock market can be a scary and uncertain place, but I personally don’t know what a better alternative is (unless you plan on working your whole life), if you want your money to grow and keep pace with inflation. Historically, the market should recover. Also, gold was never meant to be more that a portion of one’s investments. Like all bubbles, I suspect at some point gold will take a major hit, too. Consequently, I wouldn’t bet the ranch on gold, either. And, real estate which has been a traditional safe haven and good bet for investment, has some more hurdles to overcome after the real estate melt down. It isn’t easy out there folks to figure all this out. And, no one has all the answers. If you listen too much to all these pundits and so-called experts out there, they’ll truly make you nuts.

    by Artie — October 20, 2010

  2. That bugaboo word, or concept, “Inflation” frustrates me for a simple reason: it is largely irrelevant to seniors. Why? Because most authors – like Mr. Farr cited above – try to scare seniors with inflation rates based on the CPI (Consumer Price Index) or the PPI (Producer Price Indexes). What are some of the largest factors in these indices (or indexes)? Automobiles, houses, college costs, raising children. But most seniors have own their homes, don’t need a new car every three years, and have grandchildren, not children.
    What do seniors worry about? Health care (aka Medicare) #1, #2, #3. Then, taxes – although the Feds grant an exemption after 65, and many states do not tax pensions or retirement income.
    So I am still waiting for an economist or a Suze Ormond or AARP to research seniors, find what is financially important to them specifically, and calculate a relevant gerontological inflation rate to scare us with.

    by oldnassau — October 20, 2010

  3. The often sited 65 percent or 70 percent numbers are really pretty bogus. The key word is to adapt. If you are approaching retirement or are retired. Evaluate your financial position no matter what it is and adjust your life style to adapt to your real finances. The evaluation must be done on a regular basis.

    In my case a pension and social security provided about 45 percent of my last years salary. I have an IRA with about $400,000 in it, but only use it for extra expenses. This year there have been some extra expenses; higher than normal medical, a college graduation, and a few unexpected auto repairs. In a typical year we draw maybe 2 percent from the IRA. In 2010 maybe 2.6 percent.

    What we did do to adjust was to sell our 4 bedroom 2 story house, and buy a townhouse. That was the most important thing we did, it really improved cash flow. Then early this year we got a call from our bank asking if we wanted to do a no cost re-fi. We did that and went with a bi-weekly mortgage, which shortened our mortgage term by 10 years with no extra monthly outlay.

    I am seeing some substantial increases in health care costs for 2011. Medicare had a 15 percent increase in 2010 in the Medicare premium. There will be another increase for 2011. But we didn’t see them because of no SS COLA. Same thing for 2011. When ever the COLA comes it will be entirely consumed by the Medicare premium increases.

    The 2010 Medicare increase :

    by charlie — October 20, 2010

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    by » Goodbye 4% Retirement Spending Rule: Popular Rule of Thumb Eclipsed by New Theories - Topretirements — October 15, 2014

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