Will a million dollars be enough when I retire?


It seems like we have visited this question a lot … on the other hand, we have new readers every day, so it’s important to revisit the basics – and, I hope, it never hurts us to refresh our point of view either.

So, I couldn’t resist jumping in when Peter of Bible Money Matters posed the question: “Will a million dollars be enough when I retire?”

I told Peter that I love this question because it’s such a loaded one …

… we’d love to BELIEVE that it will be enough, but for most, it won’t.


Simple mathematics:

If you have $1 million (by the time that you retire in, say, 20 years) and inflation is averaging 4%, then the first 4% of your return goes just to keeping up with inflation. So, now just keeping your money in the bank isn’t enough.

So, let’s say that you can earn 9% on your money (in the stock market … crashes – and, ridiculously high mutual fund fees – aside? Hopefully!), then that’s ‘just’ $50,000 a year after inflation.

But, if you’re retiring in 20 years, $50k is (again, ‘just’) like $25k today [AJC: remember, 4% inflation roughly halves your buying power every 20 years] … so the real question becomes:

Will $25k a year be enough when I retire?

Now, that’s up to you to decide …

… all I can say is that, in my own retirement years, I’m ‘struggling’ to live off $250k a year ;)

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12 thoughts on “Will a million dollars be enough when I retire?

  1. Looks like you are taking inflation into account twice.

    With your assumptions of 4% inflation and 9% return, the $1M provides $90K return in the first year–$50K to spend and $40K to reinvest. The next year you’ll have $1.04M that provides you $93.6K–$52K to spend (a 4% increase from year 1) and $41.6K to reinvest. By the end of year 20, your nest egg will have doubled along with the amount you can spend (up to around $100K…which is $50K in today’s dollars).

  2. You nearly had me, Jeff 🙂

    IF you have $1 Mill. today, then you would be right: 9% return gives you $50k a year to spend AFTER 4% inflation. BUT, you don’t have $1,000,000 TODAY … you WILL have it (in this post’s example) in 20 years, so you will only have the equivalent of $500k (in today’s dollars) in the bank when you retire … so, just halve all the numbers in your example and you’re back to $25k (which WILL be adjusted for inflation going forward).

    Makes sense?

  3. According to the census (http://www.census.gov/Press-Release/www/releases/archives/income_wealth/012528.html) the median salary in the US is above $50,000.

    I would be a bit more conservative and start taking just 40K out and adjust for inflation each year.

    So to keep that median income from only your investments you would need $1.25M today.

    If you reduced your expenses by $10K- $1M would work. That is doable- for example if your mortgage was paid off, or your kids finally move out, or you no longer save 20% of your income for retirement.

    Poverty level for 2 people is currently $14,000 so I guess a couple could survive on as little as $350,000, but that would be a pretty meager existence.

    -Rick Francis

  4. Even after taxes, US$1million (adjusted for inflation) would be more than enough for most people because:

    1. as Rick has pointed out it will generate a income which is reasonably close to the US average income (and a person who has saved his way to US$1m would have been living off less than their full income);

    2. social security will supplement that income (although the real value of social security will fall due to demographic factors and the inability of the government to restrian their spending);

    3. most retirement plans provide for draw down of principal to meet expenses in retirement.

    For me? US$1 million is way short of what I need. I’m assuming no state welfare in my old age (which is about right in Hong Kong) and, with the intention of living 40+ years post retirement, I cannot afford to draw down principal at all.

  5. I am wondering here.Watching stocks closely(I.E.) insider buying of late. I have noticed that insider buying has dropped off quite a bit this year. Does anyone have any ideas that would fit this situation? The way I see it, prices are about half what they were in the past few years, so you would think insiders would be buying with a frenzy.

    What gives???

  6. @ TraineeInvestor – You cheated! “US$1million (adjusted for inflation)” is the same as saying “No, I need TWO $1 mill. bills in 20 years, please” 🙂

    @ Steve – Read Phil Town’s next book “Ceilings and Floors” … people ‘in the know’ feel that the market will move between today’s price (ceiling) and some lower price (floor) for some time to come. Whether they are right or wrong could be the subject of a future post …

  7. @Adrian,

    Thanks for the clarification…I didn’t realize that you were attempting to show two different examples–one where you had $1M today and one where you had $1M in 20 years.

  8. @ Jeff – The fault is mine; my example can be read either way, so I have now removed the ambiguity . Thanks for pointing it out …

  9. There are so many factors that come into play here it’s hard to say. But I will say no 25K is not enough or one million in spending power adjusted for inflation is not enough. I think in the next few years in the state we will see inflation like we have not seen in 20 years.

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  12. This makes me laugh. The world thinks like this.
    How much will i have and how much can i spend when i retire. My God people retired
    just means that, retired. What would a 65 year old person would need $50k plus a year
    when at that age you have done it all in life. your kids are all older and on the own path, your home is payed off or very close to it. There is no more keeping up with the Jones and, my God you have traveled enough that you would be exhausted to even think about getting off your family couch. There is no more responsibilities of a family. Just you and your wife. Come on people and don’t for get most likely people down size there home at that stage in life. remember the very last purchase you will make is the hole that you will be bared in. that’s the fact of life. Gee $1,000,000 today, I always send to my family, and that’s when i was 25 years of age, that’s all i need. Don’t live above your means.:)

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