How Much Will 1.5 Million Last In Retirement

Date:

Matt Reiner Of Getwelacom

Retirement Planning: I’m 58 Years Old With $1.4 Million, Can I Retire?

Matt is the CEO and Portfolio Manager of Wela, a financial planning software that provides users personalized financial advice and a host of budgeting and financial tracking tools. Check out their free e-book Economic Shutdown: 30 Day Financial Cleanse.

How much do you need for retirement and why?

I need to save $2.2 million to retire. I based this number on my current expenses plus the inflation rate. Then I deducted my monthly mortgage and the cost of raising kids to that number.

While Matt doesnt have kids yet, he already plans not to retire until his kids are independent and all his debts are paid off.

After calculating his monthly expenses, Matt came up with an estimate of how to generate his monthly expenses based on several investments. He adds,

I determined how much of a nest egg I need to earn via the dividend rate of my stocks, the interest rate I earn on bonds, and the distribution rate I get from other investments, like real estate.

His long term goal is to earn enough not to touch the principal funds during retirement. He also didnt account for social security pension, preferring to leave that as a buffer in case the market changes.

What conservative investment option can you recommend to a friend whos afraid of risk?

Buy short-term bonds to start getting comfortable with investing. Although bonds wont provide huge financial gains, and they could be affected by inflation and low yields, this will help anyone learn the ropes of investing.

How Will You Invest Your Portfolio

Stocks in retirement portfolios provide potential for future growth, to help support spending needs later in retirement. Cash and bonds, on the other hand, can add stability and can be used to fund spending needs early in retirement. Each investment serves its own role, so a good mix of all threestocks, bonds and cashis important. We find that asset allocation has a relatively small impact on your first-year sustainable withdrawal amount, unless you have a very conservative allocation and long retirement period. However, asset allocation can have a significant impact on the portfolio’s ending asset balance. In other words, a more aggressive asset allocation may have the potential to grow more over time, but the downside is that the “bad” years can be worse than with a more conservative allocation.

Just Explain It: Retiring With $15 Million Saved

Many Americans fail to plan properly for their retirements. In some cases, they put paying monthly bills, home renovations and even planning a vacation ahead of saving for retirement.

Data from a 2010 Employee Benefit Research Institute study found that retirement finances for early baby boomers were at risk. Almost half of them didnt have resources to pay for basic retirement expenditures and uninsured health care costs.

In a separate report, the institute found that estimating the amount of retirement savings youll need makes a difference. Workers who did so, calculated their nest egg should be at least one $1 million.

Which brings us to todays Just Explain It.

Whats the best way to retire with $1.5 million in savings?

We asked Doug Wheat, a Certified Financial Planner at Family Wealth Management, to help us figure it all out.

Saving $1.5 million will provide a very comfortable nest egg for most professional couples in retirement, and heres why.

Wheat says a safe initial withdrawal rate from an investment portfolio is 4% if you want to avoid running out of money during a 30-year retirement. Taking 4% of $1.5 million will give you $60,000 to add to your annual budgetand thats not including your Social Security benefits.

But there are steps you need to take to reach your goal.

Number 1 Start saving early and put away as much as you can. A worker in his 20s who takes advantage of compounding rates of growth has a good chance of reaching the $1.5 million mark.

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Retirement Savings: How Long Will My Money Last And How To Stretch It

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Figuring out how many years your retirement savings will last isnt an exact science. There are many variables at play investment returns, inflation, unforeseen expenses and all of them can dramatically affect the longevity of your savings.

But theres still value in coming up with an estimate. The simplest way to do this is to weigh your total savings, plus investment returns over time, against your annual expenses.

Try our calculator to get your estimate:

S To Make $1 Million Last 30 Years In Retirement

Retirement Ages

Regardless of your age, making sure you have enough money for retirement takes strategic planning. Garnering $1 million in your retirement nest egg might seem like a far-fetched idea but if you start early and manage the money correctly, you might surprise yourself. However, once you leave the workforce, you also have to make sure that money can get you through the rest of your life. Below, we detail some different steps you can take to make sure what you save for retirement lasts. Those looking for even more help planning for retirement can work with a financial advisor.

Recommended Reading: How Much Will My Pension Be When I Retire

Aim To Save Between 10% And 15% Of Your Annual Pre

This assumes an approximately 40- to 45-year working career during which you are actively saving money for your retirement, such as between ages 25 and 67. If you participate in an employer-sponsored retirement plan at work such as a 401k or 403 plan and your employer matches your contributions, this could reduce the amount you need to save. Employer matches represent a guaranteed, risk-free return on your money so it usually makes sense to contribute at least enough to an employer-sponsored retirement plan to qualify for a full match.

How Confident Do You Want To Be That Your Money Will Last

Think of a confidence level as the percentage of times in which the hypothetical portfolio did not run out of money, based on a variety of assumptions and projections regarding potential future market performance. For example, a 90% confidence level means that, after projecting 1,000 scenarios using varying returns for stocks and bonds, 900 of the hypothetical portfolios were left with money at the end of the designated time periodanywhere from one cent to an amount more than the portfolio started with.

We think aiming for a 75% to 90% confidence level is appropriate for most people, and sets a more comfortable spending limit, if you’re able to remain flexible and adjust if needed. Targeting a 90% confidence level means you will be spending less in retirement, with the trade-off that you are less likely to run out of money. If you regularly revisit your plan and are flexible if conditions change, 75% provides a reasonable confidence level between overspending and underspending.

Recommended Reading: How Is Social Security Taxed In Retirement

Tip #6 Dont Overpay On Your Taxes

As you withdraw money from your 401 and other retirement accounts, you will need to pay taxes on some or all of that money. You can lower the tax hit by withdrawing money from certain accounts in an informed way. Here are some common retirement tax mistakes:

  • Overpaying taxes on Social Security benefits
  • Paying investment surtaxes

$15 Million Earns You This Much Annually

How to retire with with $500,000, $750,000 or $1 million in savings

Whether youre saving to retire, or have just come into a nice windfall, knowing where to put your money to grow it is essential. There are multiple ways money can build interest, but how much interest does $1.5 million earn per year? We break down several ways you can save your $1.5 million, starting with the lowest yield and lowest risk, and moving on to higher yield and higher risk. If youre wanting to automate the asset allocation of your portfolio, consider working directly with a financial advisor.

How Much Interest $1.5 Million Can Earn Per Year

Earning interest in your investments is how most people are able to grow their wealth and increase their available funds during retirement. The amount that you can earn is going to depend on how much money you have to invest and what types of investments that you choose. Riskier investments have a higher potential to return more interest on your money than safer investments, but the risk might be too much for some.

If youre looking to invest $1.5 million to maximize the amount of interest you can earn, the answer to how much that will be depends on your investment choice. Were going to cover some of the most popular choices to invest your money in order to earn interest and talk about how much you could earn from each. Here are five popular asset options to earn interest on $1.5 million.

1. High-Yield Savings Accounts and Money Market Accounts

2. Certificates of Deposit

3. Annuities

Fixed Annuities

Indexed Annuities

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Your Personal Bottom Line

So after you add it all up, if your total retirement income exceeds your predicted expenses, you probably have “enough” for retirement. It wouldn’t hurt to have more, of course.

But if it looks like you’re going to fall short, you may need to make some adjustments and find ways to increase your income, lower your expenses, or both. For example, you could:

  • Work a few more years, if that’s an option
  • Boost the portion of your pay that you set aside for retirement
  • Adopt a more aggressive investment strategy
  • Cut back on unnecessary spending
  • Downsize to a smaller, more affordable home

The sooner you do the math, the more time you’ll have to make the numbers work in your favor.

Sharon Marchisello Of Sharonmarchiselloblogspotcom

Sharon is the author of the Live Cheaply, Be Happy, Grow Wealthy e-book, which is based on her own experience of retiring early, living frugally, and investing money. She also writes about financial fitness and retirement.

How much do you need for retirement and why?

I set a personal goal of $1 million, because it sounded like plenty of money but still achievable. But since no one really knows how long they will live, and what inflation will be like, I strive to save as much as I can.

Sharon adds that she also arrived at her $1 million target after using the Rule of 25, where she estimated her monthly expenses, and added it to her expected fixed income, then multiplied the difference by 12 to get a yearly estimate. And finally multiplied the number to 25 to get how much she should earn for a 25-year retirement.

What conservative investment option can you recommend to a friend whos afraid of risk?

The most conservative investment option, with a guaranteed return, is the retirement of your own debt.

Sharons response to this question is unique among the responders for this article, but her logic is quite sound.

She continues, Mot consumer debt carries a higher interest rate than most investment products these days. As you whittle away at the principal, you eliminate the interest expense you would have otherwise paid.

The less debt you have at retirement, the less money youll need to cover your living expenses.

Also Check: Allegis Group Inc Retirement Savings

Jamie Jeffers Of Mediumsizedfamilycom

Jamie is a mom of five kids who writes about their familys journey to paying their credit card debt. She also writes about saving money, getting out of debt, frugal living, and frugal recipes.

How much do you need for retirement and why?

Jamies husband was advised that theyd need at least $75,000 a year during retirement, which is more than two million dollars.

Realizing that number is too much and a tad out of reach, Jamie used FIRECalc to help her determine how much theyll need to retire based on past market performance.

Our magic number is $1.1 million plus all our current debts and mortgage, because we dont want to retire with debt. Thats a number we can easily reach if we invest a part of every paycheck

What conservative investment option can you recommend to a friend whos afraid of risk?

Jamie thinks people are intimidated to invest their money because of what they see in movies. Timing the market, buying high, and selling lowall that stuff is overwhelming for a newbie investor.

Dont worry about timing any markets. Find mutual funds with a solid track record and dump money in it regularly.

Yes, the market is bad at times but she adds, If you have a decade or more until retirement, the odds are youll come out ahead.

Spending From Your Assets

10 Tips to Help You Boost Your Retirement Savings

To close the gap between the income you need and the income you have, youll need to spend from your assets.

Live Off the Earnings?

Some people imagine retirement as a time when they live off the income from their savings. But for most people, including the clients I typically work with, thats not a reality. Especially if you plan to retire with $500k in assets, you will probably need to spend down your assets. Thats because interest rates are relatively low, and most retirees prefer to avoid taking major risks with their life savings.

To save enough to avoid spending from your principal, you might need to continue working longerwhich isnt always an option. The other option is to save so much of your income that its hard to enjoy yourself and make memories during your working years. Thats probably not very appealing, either.

A Safe Withdrawal Rate?

Its critical to make your money last. You dont want to run out of savings before you die, as youd need to make unwelcome sacrifices at a time in life when youre vulnerable. So, how much is safe to spend? One rule of thumb suggests that you can spend 4% of your savings per year. The success of that strategy depends on several factors , and the topic is constantly debated. Still, the 4% rule can be helpful as a starting point for learning where you stand.

To calculate your 4% amount for Year 1, multiply your retirement savings by 0.04 or use the tool below.

Also Check: How To Downsize For Retirement

Carlos Gomez Of Commoncoremoneycom

Carlos, aka Homie G is a teacher, investor, success coach, and personal finance blogger at CommonCoreMoney.com. Hes been featured on Money magazine and the San Diego Union Tribune. You can also follow him on Twitter at @COsvaGomez.

How much do you need for retirement and why?

My wife, Jessica, and I will need a total of $4.45 million in total assets to retire at age 65 and live comfortably for 30 years.

Carlos explanation of how he came up with this number is detailed and focuses on his current and future expenses.

We spend $37,000 a year on mortgage, property taxes, insurance, and maintenance. We spend about $29,000 a year on all remaining living expenses. Therefore, we are spending about $66,000 a year to maintain our standard of living.

Carlos knows their current annual expenses will change after retirement. His mortgage will already be paid up by then, but he expects the property maintenance costs, taxes, and insurance cost to increase over time.

Using a 2.5% yearly rate of inflation, I estimate my housing costs will be about $17,000 when I retire in 2042. The $29,000 in living expenses will be about $54,000 factoring inflation at 2.5% once again. That means well need $71,000 in 2042 to maintain our current standard of living.

What conservative investment option can you recommend to a friend whos afraid of risk?

Yes, the yields are smaller but CDs are FDIC insured up to $250,000 per person per bank, unlike stocks and other paper assets.

Is $15 Million Enough To Comfortably Retire Off

People often say that if you have a couple of million dollars saved up for retirement, you should be good to go.

But is that really enough? Sure, its more than the average person has saved, but is it sufficient to cover your expenses and last for 30 years or more?

A lump sum of $1.5 million should be more then enough for an average persons retirement needs. Not only is it enough to support your previous living standards and continue paying your bills, but it should allow you to live in some of the best U.S. cities.

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But of course, this is a very blanket statement, and not every lives within the same standard of living. One thing that is constant for just about everyone though is some level of inflation.

Inflation has led, and will continue to lead, to an increase in the cost of living for Americans. Its no secret that $1.5 million isnt as much as it used to be a few years ago. As inflation goes up, our purchasing power goes down.

But lets stick to the question at hand here. The next part of this article further discusses what it looks like to retire comfortably on $1.5 million.

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