How Long Can A $15 Million Sustain You During Retirement
$1.5 million can last you several years during retirement if youre smart with it, and of course it also depends on where you live and your desired lifestyle.
Life in some cities is expensive, and $1.5 million wont last as long as it will in other cities.
A $1.5 million retirement plan will sustain you for around 10-25 years in expensive cities and around 20-35 years in the southern towns where life is less expensive. This means if you retire at 65 and live in places like New York, your money will sustain you through your 70s and early 80s.
But thats different for a person retiring at 65 and living in southern states like Arkansas where the cost of living is much more cushioned compared to New York.
The same amount will likely sustain them through the 70s, 80, and probably into your mid-90s without a problem.
Lets do the math based on the essential expenses, such as annual rent, transport, food & groceries, healthcare, and utility bills.
What About Income Taxes During Retirement
Its crucial to estimate taxes for a detailed retirement plan. Expect to pay income tax when you withdraw those funds if your money is in a pre-tax retirement account such as an IRA, 401, 403, or 457. Additional tax penalties may apply if youre younger than age 59 1/2 when you take withdrawals, but there are some exceptions.
Fortunately, taxes might not be a substantial burden if youre planning to retire with $300,000.
What Are Your Retirement Lifestyle Expectations
Ultimately, how much money you’ll need for your own retirement is very personal, and will depend on your own situation, wants, needs and lifestyle expectations. It may help to factor in your day-to-day spending habits, your recreational activities and hobbies and whether youll be entering retirement debt-free. The following figures are a guide taken from the ASFA retirement standard.4
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What If I Already Have Enough To Retire
If you already have enough to retire, what are you waiting for?
Youve worked hard, saved prudently and spent modestly. Youve now got enough income and capital to retire at 60.
Dont be like the couple I recently met, who carried on working until they were 65. By completing a cash flow report, I showed them not only could they afford to retire now, but they could have retired at 60 .
Book a retirement review now to see if you could retire at 60.
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How Our Retirement Calculators Can Help
Meet Mac. Hes 51, married and planning to retire at age 65.
To work out how much Mac might need in retirement, he tries our retirement needs calculator. Mac is hoping for a comfortable standard of living in retirement, and our calculator estimates this will cost him $1,154.49 a week or $60,033 a year. Hes also planning on buying a new car and doing some travelling once retired, and thinks hell need $40,000 for these one-off expenses. Based on a life expectancy of 81 years, our retirement needs calculator estimates hell need a total of $993,473 to fund his retirement.
So how much might he have in retirement, and how long is his money likely to last, based on his current and expected financial situation?
Mac uses AMPs retirement simulator to find out. Mac currently has $172,000 in superannuation invested in a balanced investment option, an annual pre-tax salary of $82,000, shares worth $20,000, and the couple owns their family home. Based on this information, our retirement simulator calculates hell retire with savings of $294,944. Based on his expected expenditure in retirement outlined above, our retirement simulator estimates his money will only last until age 71, leaving him with a funding shortfall of 10 years in retirement.
While this news may seem scary, its not an uncommon situation. Luckily, finding out about the possible shortfall now means there may still be ways to boost his savings before retirement.
What do you do if you wont have enough to retire?
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Isnt Your Financial Advisor Helping You With This
This is exactly what a fiduciary financial planner is forto figure this out with you . If youre paying somebody who only manages your money or sells you products, it may be time for a change. Reach out if youd like to talktheres no obligation, and we can just chat. I do not sell anything for a commission, I provide ongoing or one-time advice for clients, and I can work with people in Colorado and other states.
If you dont yet work with a financial advisor, consider the benefits of doing so. You can spend your time and energy on other things, and an experienced professional can help guide you through lifes inevitable changes. Plus, a study from Schwab Modern Wealth showed that having a plan can increase your retirement confidence and help you develop healthy financial behaviors:
- 56% of people with a written financial plan felt very confident about their goals
- Only 17% of respondents without a plan felt very confident
There are many ways to work with an advisor, and things may have changed since you last spoke to a financial planner. For example, its easier than ever to work with somebody for one-time financial planning or pay a flat fee for advice. Its understandable if youve had bad experiences in the past, and there are still plenty of advisors out there who are painful to work with, but things are changing.
Choose A Withdrawal Rate Based On Your Time Horizon Allocation And Confidence Level
CSIA updates its return estimates annually, and withdrawal rates are updated accordingly. See the disclosures below for a summary of the Conservative, Moderately Conservative, Moderate, and Moderately Aggressive asset allocations. The Moderately Aggressive allocation is not our suggested asset allocation for any of the time horizons we use in the example. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product and the example does not reflect the effects of taxes or fees. Past performance is no guarantee of future results.
Again, these spending rates assume that you will follow that spending rule throughout the rest of your retirement and not make future changes in your spending plan. In reality, we suggest you review your spending rate at least annually.
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Is $750000 In Super Enough To Retire On
Reading time: 2 minutes
A million dollars is often talked about as the gold standard of retirement savings, but it is a suspiciously round number. Depending on your personal circumstances, you might live well on much less, say $750,000, especially if you are not a big traveller or you intend to continue working well into your 70s.
Weve decided to test run a series of retirement balances that are below $1 million but more than comfortable according to the ASFA Retirement Standard. ASFA estimates a couple can live a comfortable lifestyle with a retirement balance of $640,000 while singles can enjoy the same with $545,000.
Using MoneySmarts Retirement Planner we have calculated how much income $750,000 in super will generate under a range of scenarios including:
Note: We do not consider it realistic to achieve returns of 7% or 8% per year net of all fees, particularly over such a long time period, but we have added these as points for comparison after requests from readers.
Social Security Kicks In
At some point, Social Security will kick in. For anyone born in 1960 or later, the normal retirement agethe age at which you are entitled to full Social Security benefitsis 67. You can start taking benefits as early as age 62, but your monthly benefit will be reduced by about 30%. The longer you wait to start, the more youll receive each month. You can delay your retirement benefits until age 70 for an even larger monthly benefit.
The average Social Security monthly retirement benefit is $1,618.29.
If you can stretch your $500K in savings until then, your Social Security benefits will kick in and provide a welcome monthly cash infusion. Be sure, by the way, that you have worked enough quarters to qualify for Social Security.
If you invest at an average return of 7% per year , your money will double every ten years. Therefore, if you have $500,000 at age 45, you can have $2 million at age 65 if you leave it alone. Why not work longer so you can enjoy life more? If you are going to live for 40 years or so you might get awfully bored if you are not gainfully employed. And if you are living off savings that must last 45 years, your lifestyle will never get more opulent, says John R. Frye, CFA, and Senior Advisor at Carnegie Investment Counsel in Los Angeles, California.
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Why Employers Offer 401s
In 1978, when the law authorizing the creation of the 401 was passed, employers commonly attracted and retained talent by offering a secure retirement through a pension . The 401 created an entirely new system, with more flexibility for both employer and employee. One of the ways it did so was by giving employers the option to match employee contributions.
Matching is a very transparent process: for every dollar you put into your 401, your employer also puts in a dollar, up to a certain amount or percentage of your income. Theres no mystery here. If your employer promises to match all 401 contributions up to 5% of your income, and you contribute that amount every month, your employer will match you dollar for dollar, every month. Its a win-win situation. You are doubling your money, and your employer is building a happy workforce.
$10 Million Retirement Lifestyle
Assume a married couple wants to retire at age 50 with $10M portfolio. For simplicity, we’ll assume their asset allocation is a 60/40 mix of US stocks and bonds. The illustration uses the weighted annualized return and volatility figures between 2007-2021 to estimate portfolio growth and risk .¹ Inflation is 2.2% and their life expectancy is age 90. All tax implications have intentionally been excluded from the analysis.
Running a Monte Carlo simulation with a success rate of at least 80%, we can back into the Morgan’s maximum annual ‘safe’ withdrawal rate: $475,000.²
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How To Stay On Track
The point of benchmarks isnt to make you feel superior or inadequate. Its to prompt action, coupled with a guidepost to inform those actions, even if that means staying the course. If youre not on track, dont despair. Focus less on the shortfall and more on the incremental steps you can take to rectify the situation:
Make sure you are taking advantage of the full company match in your workplace retirement plan.
If you can increase your savings rate right away, thats ideal. If not, gradually save more over time.
If you have a company retirement plan that enables automatic increases, sign up.
If you are struggling to save, many employers offer financial wellness programs or other tools that can help with budgeting and basic finances.
Use these savings benchmarks to get more comfortable with planning for retirement. Then go beyond the rule of thumb to fully understand your potential retirement expenses and income sources. Beyond your savings, think about what you are saving for and how you envision spending your time after years of hard work. After all, thats the reason why you are saving in the first place.
Past performance cannot guarantee future results. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.
View investment professional background on FINRA’s BrokerCheck.
Impact Of Inflation On The Cost Of Goods And Services
When saving for retirement, keep in mind that goods and services will cost more in the future. You can predict how much more goods and services may cost by looking at rates of inflation in past years.
Figure 1: How much a $100 item increases in cost over time because of inflation
Bank of Canada Inflation Calculator. The average rate of inflation in Canada between the year 2000 and 2014 was 2.00%.
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Saving For Retirement: Where Are You Now
Whether you plan to live lavishly or frugally, youll need to have a certain amount of money saved by the time you retire. Think of this figure as a mountain summit, reachable by several different paths. If youve done everything right so far, that summit is still in plain view youve followed the most direct and least difficult path, and all you need to do is continue on in the same direction. If, however, your savings arent where they should be, its as if youve wandered in the wrong directionyoull need to recalibrate and start climbing in order to reach the summit.
To determine your current financial coordinates, you need to answer three questions:
- How much have I saved thus far?
- How many years until I retire?
- Whats my annual income ?
The answers to those questions will determine how much work you have to do to reach that mountaintop. If youve saved plenty and youre still young, greatyoure well on your way. If youve saved nothing and your sixties are just around the corner, not so much. Lets check out some examples using our retirement calculator to see how this works in reality.
How Much Do I Need To Retire
How much money do you need to comfortably retire? $1 million? $2 million? More?
Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you’d aim for at least $80,000 of income in retirement.
However, there are several factors to consider, and not all of your income will need to come from savings. With that in mind, here’s a guide to help calculate how much money you will need to retire.
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How To Increase Your Chances Of Success
The success of a 5% withdrawal rate depends on a few factors. Retirement often lasts for more than 20 years. You want to be able to withdraw 5% of your savings each year and not run out of money.
Investing, instead of simply saving or only saving, can help ensure that your funds last through a lengthy retirement. Your money will last 20 years if you withdraw 5% while earning no interest on it. But retirement can last much longer for many people, and exhausting your funds doesn’t allow you to leave money to family or charity.
You may be able to withdraw 5% or more if you have a portfolio yield of 3% to 4%. Withdrawing 5% would be well below your annual gain of 7% if your portfolio is earning a 4% yield from dividends and the markets rise by 3%. Any gains in the market can help boost your portfolio and increase the chances of being able to withdraw 5% per year.
Here Are Some Additional Items To Keep In Mind:
- If you are regularly spending above the rate indicated by the 75% confidence level , we suggest spending less.
- If you’re subject to required minimum distributions, consider those as part of your withdrawal amount.
- Be sure to factor in Social Security, a pension, annuity income, or other non-portfolio income when determining your annual spending. This analysis estimates the amount you can withdraw from your investable portfolio based on your time horizon and desired confidence, not total spending using all sources of income. For example, if you need $50,000 annually but receive $10,000 from Social Security, you don’t need to withdraw the whole $50,000 from your portfoliojust the $40,000 difference.
- Rather than just interest and dividends, a balanced portfolio should also generate capital gains. We suggest using all sources of portfolio income to support spending. Investing primarily for interest and dividends may inadvertently skew your portfolio away from your desired asset allocation, and may not deliver the combination of stability and growth required to help your portfolio last.
- The projections above and spending rates are before asset management fees, if any, or taxes. Pay those from the gross amount after taking withdrawals.
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A Helpful Way To Set Your Retirement Target
Several financial rules and guidelines can be applied to generating retirement income. A simple and popular investment strategy for those saving for retirement is the $1,000-per-month rule of thumb. How much do you need to invest to make $1,000 a month?
The $1,000-a-month rule helps you gauge how much you must save in order to withdraw a certain amount monthly in retirement. Find out how it works, what pitfalls to watch out for, and how this rule of thumb compares with other retirement guidance.
Spending From Your Assets
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.
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