How Long Will $1 Million Last in Retirement?

The answer depends on several factors, including your retirement age, life expectancy, and the lifestyle you plan to maintain. For some, $1 million might be sufficient for a comfortable retirement, while for others, it may fall short.

A 2022 Northwestern Mutual study revealed that 62% of U.S. adults believe their financial planning needs improvement, yet only 35% of Americans work with a tax accountant or a financial planner.

Can You Retire With $1 Million?

While retiring with $1 million is possible, several factors could complicate this goal. Here are a few potential challenges:

• Inflation: If inflation exceeds the Federal Reserve’s 2% target, $1 million may not stretch as far as anticipated.
• Healthcare Costs: Medicare helps but doesn’t cover everything. Co-pays, prescription drugs, and long-term care can significantly deplete your savings.
• Social Security: The cost of living adjustments for Social Security may not always match inflation rates.

How Long Will $1 Million Last in Retirement?

The longevity of your $1 million savings depends on several key factors:

• Retirement Lifestyle: Your spending habits and lifestyle choices greatly impact how long your savings will last.
• Retirement Age and Life Expectancy: The earlier you retire and the longer you live, the more you’ll need.
• Health: Medical expenses can vary widely based on your health.
• Risk Tolerance and Capacity: Your investment strategy and risk management play crucial roles.
• Cost of Living: The cost of living in your area affects your spending power.
• Social Security Timing: When you start claiming Social Security benefits influences your overall retirement income.

3 Hypothetical Examples of $1 Million in Retirement

Using a retirement calculator, we can explore different scenarios to estimate how long $1 million might last:

1. Example #1: With $1 million in savings, earning a 6% annual return, and withdrawing $5,000 per month in the 24% tax bracket, your savings should last just over 30 years.
2. Example #2: With the same $1 million, earning a 5% annual return, and the same withdrawal and tax bracket, your savings would last 26 years.
3. Example #3: Earning a 7% annual return, in the 32% tax bracket, and withdrawing $6,000 per month, your savings would last 23 years.

These examples are hypothetical and do not account for inflation, changes in withdrawal rates, or federal tax bracket adjustments.

7 Tips to Help Save $1 Million (or More) for Retirement

Regardless of your current savings, these tips can help you reach the $1 million mark or beyond:

1. Maximize Your 401(k) Contributions: Contribute enough to get the full employer match, if available.
2. Increase Contributions Annually: Gradually raise your contribution rate each year.
3. Open a Roth IRA: Benefit from tax-free withdrawals in retirement and avoid required minimum distributions.
4. Invest in a Taxable Account: Consider your risk tolerance and capacity when investing.
5. Review Accounts Annually: Assess and potentially lower fees on your retirement and investment accounts.
6. Consider Tax-Advantaged Investments: Municipal bonds, for example, are exempt from federal taxes.
7. Invest in Inflation-Resistant Assets: Real estate or Treasury Inflation-Protected Securities (TIPS) can help protect against inflation.

Consulting with a tax accountant and financial advisor early in your planning process can provide tailored strategies and adjustments to help you achieve your retirement goals. The sooner you start, the better prepared you’ll be.

The information provided in this article is intended for general informational purposes only and should not be construed as professional advice for you specifically. While we strive to provide accurate and up-to-date information, the content may not reflect the most current legal, tax, or financial developments for your particular needs both personally and professionally.  The information presented here should not be used as a substitute for professional consultation.

Pivotal Forensic Accounting & Audits assumes no responsibility for any errors or omissions in the content, nor for any actions taken based on the information provided herein.