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Retirement 101, Module 2: Retiring on $1 Million (or a Lot Less):

Category: Financial and taxes in retirement

Note: This is Module 2 in our Online Retirement Planning 101 Series. See end of article for full list.

January 26, 2019 — The overwhelming #1 suggestion for our Retirement 101 series was “How to Retire on Less than $1 million” (smaller numbers were suggested to). Certainly most retirees find themselves in this predicament. Living on Social Security plus maybe some small savings is not a recipe for a happy retirement – unless you take drastic steps!

Over the years in many articles we have outlined some of the tactics you can apply to make the best of this situation. But even if you fortunate to be well fixed financially in retirement, you still might be able to profit from a few of these ideas.

Exercise #1: Figure Out Your budget (this applies to everyone!).

Until you have a good idea of what your retirement expenses will be and how they match up to your income, you can’t really start planning. While not difficult to do, it is a critical step to head off what could be a disaster – running out of money way before you are ready to check out. This budget worksheet in csv format contains most of the items you need to consider when developing a budget – just input them into a spreadsheet, by hand or on a computer.


Retirement income can come from many sources. Unfortunately for many people, Social Security is the only source. You need to know what income sources you will have, and how much they will total.

Social Security income is the main source for most people. Which is too bad, because the average Social Security benefit was only $1413 in 2018 (some receive a lot more, others less). Fortunately, it is easy to estimate how much you are going to get. Just go to the government’s “Social Security Estimator” to instantly get a pretty good estimate of your monthly payment, depending on when you start collecting.

If you are fortunate to have a pension income your employer should be able to advise on how much you will receive.

Your 401k,  retirement funds, and investments and savings will generate income for you, depending on how much you have saved and how well you invested them. You can also spend them down as you age. An old rule of thumb is that if you start taking out 4% a year from these funds at age 65 you probably won’t exhaust your nest egg in your expected lifetime. Vanguard estimates the average person 65 or older year old has a little over $200,000 in retirement savings. While that might seem like a lot, at a 4% return that translates to just under $6900/year in sustainable income. But even this is misleading since the median retirement balance (what most people are likely to have) is way lower than the average figure at about $60,000 ($2400/year at 4%).

A budget tool we like is the Vanguard Nest Egg Calculator , which automatically does a number of important calculations for you (other companies have similar ones). You tell it how much you have saved and how much you need to take out, it will predict how long the money will last.

Employment is the biggest income variable you have some control over. Even a part-time job could make the difference between poverty and a comfortable retirement.


The second step in establishing your budget is to identify all of your expected expenses in retirement. They probably won’t be quite as high as they are now in your working days, but they won’t be a whole lot less either. While you’ll probably save on work related expenses, travel and health care costs could more than make up for those. You might have to support a parent, child, or grandchild. In your later years you will probably have to pay for a home health aide or assisted living – if you are lucky enough to live that long.

Compare expenses to income.

If your current expenses outmatch income, now is the time to figure out strategies to fill that gap – and to take action quickly. Fortunately, there are a lot of things you can do besides wringing your hands and complaining.

Strategies for coping with a shortfall

The biggest opportunity you have to make up a shortfall is to cut your housing expenses – that is where the big money is. There are many ways to do this.

1. Downsize. If money is going to be tight, the first thing to do is get out of that big house you live in now. With your children gone and no need to be near work, why would want to pay more each month to heat, cool,  and maintain that home – let alone pay property taxes?

2. Sell your home and move to a lower cost one. Depending on where you live now, there are probably many neighborhoods, states, and towns with a much lower cost of living. Real estate in areas of the midwest, the south, and places away from the coasts is almost always way less expensive than in the Northeast, Colorado, or the West Coast. The same goes for other living expenses. If you own property in an expensive market you can sell it, buy a much nicer home in a cheaper area, and still have a pile of cash to live off. In our article “The 10 Cheapest States” we list Alabama, Tennessee, and Iowa as three of the lowest cost states. But there are others too. Just remember before you make a big move though, that you have to find a place that makes you happy. Don’t just move somewhere for the money.

2. Work longer. Every year you keep working gives you a chance to bolster not only your retirement savings, but to add to the amount you can collect from social security (about 8% per year from full retirement age to age 70). If you are 50 or older the IRS lets you put extra into your retirement. So, if you are eligible take advantage to make maximum payments to both an IRA and 401k . And every year you don’t live off of your savings gives them extra time to grow.

3. Get a job. You can only control your expenses so much. After cutting them down as much as possible you are still short, the best idea is to find a job, full or part-time. Maybe you can find one in your current field or profession. Or  perhaps you have a hobby you can turn into extra income such as childcare, bike repair, driving people to the airport, or pet-sitting. Golf courses need starters and marshals. Stores need clerks and restaurants waiters and hostesses. Uber and Lyft need drivers. You probably have skills that employers in your area need, so take advantage. You can increase your odds of finding a job by choosing a place to retire where there are more job possibilities. Research unemployment rates and potential job listings before you decide.

4. Delay taking Social Security. If you think you have a probability of living past age 80, you are probably better off delaying social security unless at least 66, if not age 70. That assumes you can work or find another source of funds while you delay. The whole subject is quite complex – for example you might be eligible to take a restricted benefit: start collecting a spousal benefit and delay taking your own benefit until age 70. Talk to your Social Security office and financial advisor for options and advice.

5. Cut your expenses. Take a hard look at your budget if your expenses are overwhelming your income.  Obviously you can cut vacations and travel.  Medical expenses are not so easy to cut, unless you are a veteran and can rely on the VA for cheaper drugs and no co-pays. Do you really need cable TV – maybe you can watch shows online?  You could rent instead of own, or share a house with a relative or friend. Manufactured homes can be bought in many communities for well below $100,000.

7. Move to a low-tax state.  Income and sales taxes are not going to be a problem if you don’t have much income to spend. But property taxes are another story – there are areas of the country where they are a fraction of others. For example, NJ property taxes are 1.89% of value, whereas they are third of that in Tennessee (and homes are worth less there, too).

8. Share a House. Do you have a relative or a close set of friends you think you could live with? If so you can create your own co-housing community, although of course you must choose carefully and set up legal protections. It might not cut your housing expenses in half, but it could come close!

9. Move to an unconventional house. Manufactured homes are usually very good quality and far less expensive than traditional “Stick-Built” homes. Mobile homes are about the least expensive type of housing you can buy, often available for $20,000 or less. Many are in really nice communities in great locations (e.g.; there are many such communities in Jensen Beach, FL.). Do be careful about places where the annual lot rents go up significantly every year. The Tiny House Movement (also known as Pocket Homes) is very popular with homes sized less than 1000 sq.ft, even as small as 80 sq.ft.!

Tiny House, courtesy of Wikipedia and Tammy

You can usually move tiny houses from place to place, which is a big advantage. Finally, why buy a house at all? In some parts of the country you might be better off renting. Or buy a big RV and travel around the country with the seasons. There are lots of ideas if you look around.

10. Be part of the Sharing Economy. Lots of millennials survive by participating in the sharing economy – and you can too. Drive with Uber, rent out a room in your house with Airbnb or HomeAway, or get part time work with Taskrabbit (there are many other sites that do the same thing). You can pet sit, run errands, do minor repair work – the higher your skills the better the pay. Work when you want to and earn enough to avoid a drastic downgrade of your lifestyle.

10. Pay off your debts before you retire.  There is a surprising amount of baby boomer debt. Take whatever measures you can to retire this debt; whether it is credit card, consumer, or home mortgage, before you quit working.

11. Save money – everywhere. If you view saving money as a job it can pay off as if it is one. See these money saving tips with well over 100 ideas from our Members – fantastic suggestions!


  1. Develop your retirement budget and share with partner/spouse/friend or family.
  2. If there is a shortfall, what steps can you realistically take to narrow it?
  3. Agree on a timeline for achieving those steps.

For further reading:

Please add your comments and suggestions below!

Posted by Admin on January 25th, 2019


  1. Good info in this module, esp the top section. I would suggest a “proceed with caution” on a couple of the Strategies for Coping with a Shortfall though. First, moving to a low cost state: it is a lot easier to move away that it is to move back, esp if you are on a limited income. For example a very dear friend moved to a less expensive state down south thinking that it would be more affordable after her husband died and loss of his SS reduced her income. It didn’t take long for her to regret that decision but because of her financial situation is unable to return. Likewise my s-I-l’s parents. It is very seductive to think that moving to a “cheaper” state wll solve your financial troubles while giving you lots of sunshine but if you can’t fund a return should it not work out should be the last option considered. And second Move to an Unconventional House: In addition to the rents for a lot going up consider how they stand up to wind! Just last week the news showed a “tiny house” that was blown on its side in heavy wind causing serious injury to the woman inside.
    I dont mean to sound negative especially if the money is tight, a lot of thought about what could go wrong with each option and can the fix be afforded is needed.

    by Jean — January 26, 2019

  2. The one thing these type of plans never address (and probably can’t) is how to figure out what to spend now vs save. My hubby and I have a comfortable but not lavish lifestyle with a reasonable amount of savings. How do we decide what to spend now for travel etc. vs save for the future. My Mom is a good example. She had a decent income and lived frugally and had a decent amount of savings. Suddenly at 85 she suffered several health issues. Thanks to medical insurance she could afford the bills but when her health suddenly went down hill she ended up in a nursing home. Savings evaporate quickly when it costs $10,000 a month to be in that situation! She was nearly out of money and we were scrambling to figure out what to do Medicaid…and if she would qualify etc. Unfortunately she passed away just before she had nothing left but would have been in dire straits had she lived. How can that be planned for? Unfortunately I don’t believe it can. So my delema is what to spend and what to save and I don’t even have kids to leave anything to so I don’t want to die with a pile of money that I could have enjoyed.

    by Laura — January 26, 2019

  3. Don’t recall seeing a module 1. Where is that?

    Editor note: Hi Linda. Module 1 is the Introduction.

    by Linda — January 26, 2019

  4. @Jean: Not clear to me why one would wish to return to a high cost state if money is an issue. Your money would just vaporize faster.

    by Linda — January 26, 2019

  5. Linda, The reason people might want to return is because they miss family and friends, are unhappy with the (perceived) quality of medical care, are disappointed with the lifestyle in general, realize that if it comes to it, they would prefer to live in a nursing home near family than 1000 miles away etc. Over the years I saw many people move back to an expensive state and heard of many more who wanted to but felt trapped in the new place because of the cost to move back an the increase in real estate since they left. When I lived in SC many of the women I spoke to in the 55+ community in which we lived wanted to move back to their home states but their husbands didn’t and hoped to do so if/when they are widowed or their husbands became dependent.
    I understand the financial part but even the most expensive states have pockets of affordability. In NJ for example, there are older 55+ communities in the shore area that have homes listed in the 100,000s and even some lower. And a person with a very small nest egg and who relies on SS and a small pension probably would not have to worry too much about income taxes even in states with high rates.
    Bottom line, money is only one of the considerations when contemplating a move and a person on a limited income is less able to “undo” a relocation than someone with greater assests.

    by Jean — January 27, 2019

  6. Taxes are only a part of the big picture and you have to look at ALL of them. Property tax is low in TN but sales tax is 9.5% ! County and city taxes can add up too. Some states still tax Soc. Sec. – another thing we were concerned about.

    In a “low tax state” you also don’t have the services that you would elsewhere. We recently moved from the SE to the NE and LOVE IT! Our small house cost as much as the large one we left but it is worth every penny to be where we are happy and know that we fit in. No family here, our sons are scattered and not near by, so we hope to ultimately rely on a CCRC for long term care. Our savings are under $1mil. and we planned, for at least 5 years, with two different advisors so I am sure we’ll be fine in the long run.

    by HEF — January 27, 2019

  7. Laura, you’re right — you can’t fully plan for when “life” might happen to you. Your mother got through to 85 — mine too. But I hit 4 major surgeries in 5 years in my late 60s. Best you can do is plan a reasonable budget for what you expect (for you, maybe at least to 85-90 — include some “good time” each year, track your plan, avoid frittering away your savings on impulse and be ready to adjust as you see the need. Because of longevity on my wife’s side, our plan goes beyond 90. But already we have had to adjust later travel plans based on my health. We started all this with house paid off, small pension and @$400K. Budget and cost management has helped a lot.

    by RichPB — January 27, 2019

  8. Question for Jean: what are some of the 55+ properties in NJ listed in the 100k’s? Thanks.

    by Paul — January 29, 2019

  9. If you are considering putting a home equity line of credit into place as part of your financial retirement planning, I’d suggest doing it BEFORE leaving your job if possible. I retired this year and decided to get a home equity line from my bank for possible future emergencies. The application was a LOT more complicated as a retiree than it would have been if I was still employed (even though I bought my house for cash, it’s worth several times the amount of the line of credit, my credit rating is in the 800s, I have no debt, a good-sized 401K, etc.).

    by Kate — January 30, 2019

  10. Paul, try this link . There are a number that show the range of prices starts “below 100000” I cant speak for all but a friend lives in one of the Holiday City locations and the monthly fee is only $30 and that includes lawn mowing ad snow removal. Also the property taxes are low. There are a couple places up in Sussex and Warren counties that are in the $100000s too.

    One other thing, if you go to the link I posted above you can select a community and there is a link for the homes for sale n that community. Many of them are older, some of the houses might need some updating but there are also some homes that have been totally updated by flippers that are still in the $100000s.

    by Jean — January 30, 2019

  11. Moving doesn’t solve all problems. Florida has no income tax, but the property tax is higher than our old home in Georgia. Our new home is much smaller and our lot is smaller. The really big change for us is how the medical system works differently!!

    Go visit the new place in different seasons. Florida is warmer that Georgia in the winter, but the summers are HOT and HUMID! Personally, I would rather deal with hot and humid that long cold winter.

    Agree with getting rid of as much debt as possible! The only debt we have is a new car bought in 2015. We don’t have a mortgage or rent which is huge when living on a fixed income.

    Every move costs money not just to move, to set up house – old curtains don’t fit, etc.

    Put in the effort to research and think everything through to reduce the chance that you will be unhappy after moving.

    by Bobby — January 30, 2019

  12. When we moved south after retirement we had one surprising and significant reduction in our cost of living. All of our utilities are significantly lower; probably a reduction of around 40%. Our new home is roughly twice the size of our previous residence but because it is much better built and much more energy efficient, our heating and AC costs have been reduced. It is important to understand your normal monthly “operating expenses” wherever you choose to live, but be aware that significant differences do exist, and factor that into your decisions. Additionally, because neither of us has that daily commute to work, vehicle operation and maintenance costs are also greatly reduced.

    by Steve — January 30, 2019

  13. You can buy an insurance policy for nursing home care to insulate that burden.

    by Gars — February 3, 2019

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