A million dollars sounds like a lot of money, but is it enough to retire on? It depends… for people who live frugally or who have a pension or a high Social Security benefit, it could be more than enough. For others, who may not have a pension or who have a higher standard of living, $1 million may not be nearly enough to live on during retirement.
What will $1 million look like for the typical retiree? “In practice, a $1,000,000 portfolio will only be able to produce about $45,000 of income per year without significant risk of depleting principal over the long term,” says Jon Powell, a financial planner in Rockville, MD. “For some, this may be plenty of income. For others, it won’t be.”
More helpful, advisors say, is to think about retirement numbers in terms of what you’re making and spending now. “At a minimum, I like to see a client have a retirement portfolio that is 25 times their living needs, net of Social Security and pension payments, if they plan to retire at 70,” says Patrick Lach, a financial planner in Louisville, KY. “In a perfect world, I would like to see someone have a portfolio that is 40 times their living needs.”
Other things to consider include where the money is saved and how long you expect to live. For example, Roth IRAs are tax free while traditional IRAs are taxable. If you have to pay 20 or 30 percent in taxes on your withdrawals, you may need more than $1 million to retire on.