Can you retire on $1 million? How much money does it really take in order to be truly prepared for retirement?
Retirement can be a scary concept if you don’t have a plan. Who wants to keep saving without knowing how much they really need?
There are many factors that go into deciding how much money you will need for retirement. When do you plan to retire? What do you plan to do in your retirement years? Do you have any large, outstanding expenses, such as a mortgage? If you haven’t yet answered these questions, check out our previous blog post, Planning for Retirement.
What are your retirement plans?
When calculating the amount of money you will need, it can be helpful to think about some of your biggest retirement expenses. For those who plan to retire early, healthcare expenses often tend to be the largest expense (unless you qualify for a subsidy on the marketplace policy). If you have modest retirement desires, housing and healthcare generally take up the biggest chunk of your retirement savings. For affluent retirees, the top spending items tend to relate to travel and experiences. It’s very important to at least have an idea of your retirement plans. This will give you great insight into your biggest expenses and how much savings you will need.
Inflation: It matters where you invest
If you’re already investing for retirement, you may have concerns about the rates of inflation. How will ever-increasing prices affect the funds you’re so carefully investing? The good news is that as long as you keep up with your investments, inflation won’t make much of a difference.
It’s important to make sure that your retirement money is invested in a place where it will grow just as much or more than inflation. If your investments are in cash or fixed income that doesn’t adjust to increasing prices, you may be in trouble. In that case, inflation might, in fact, make your $1 million fall short of what you will need.
Instead, consider investing in ways that will really make your money grow. These can include a 401(k), Roth IRA, or stocks and bonds. Because the options are so diverse and variable, we highly recommend consulting with a financial planner. An experienced financial planner can give you the inside scoop on the most effective ways to invest and grow your retirement savings at the greatest rate.
Keep your money growing (investing during retirement)
Another way to protect from inflation is to keep your money growing even during your retirement years. If you’re already working with a financial planner, they’ll be able to help you ensure that your funds are still in the best place, or move them around if they’re not.
As a basic principle, you’ll want to keep your investments in items that adjust with inflation, such as stocks, real estate, and commodities. Having a robust portfolio that grows with inflation rates doesn’t end when you celebrate your first day of retirement!
Can you retire on $1 million?
The amount you will need for retirement can vary greatly depending on your situation. For some, $1 million will be more than enough. For others, it will fall short. However, the average person who has invested for retirement and plans to retire at age 65 and older will find the answer to be a probable “yes”. For this person, $1 million combined with Social Security income will likely be more than enough to retire.
We know that everyone’s situation is different when it comes to retirement planning. That’s why we offer personalized financial planning to help you ensure that you’re financially ready when retirement age arrives. You only get one shot at retirement. We’ll help you get it right.
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.