How Long Will Your $1 Million Last In Retirement?

IBD ^ | 10/29/2019 | Paul Katzeff

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Congratulations! Your retirement planning paid off. You built a $1 million retirement nest egg. But how long will $1 million last in retirement?

Retirement Planning To Make Your $1 Million Last

Let's say you're 65 years old and earn $115,000 a year. That's a decent annual income, but it's no king's ransom. It's enough to let you sock away good chunks of money each year. But it's not so high that it trips over income limits when it comes to saving in a retirement plan such as a 401(k).

The simple arithmetic answer to the how-long-will-it-last retirement planning question is that your savings would last less than nine years. That's how many years in a row you can subtract $115,000 from $1 million.

And less than nine years is not very long if you're healthy and have a normal life expectancy.

The average American's life expectancy is now 78.6 years, as of 2017, according to the U.S. Centers for Disease Control (CDC). But for a 65 year old, it's closer to 20 additional years, according to CDC data. So, if you retire at age 65 and you're typical, you can expect to live to nearly 85. Nine years of money does not cut it.

Put Your Retirement Nest Egg To Work

But your $1 million nest egg can last longer. Here's how.

First, the simple arithmetic calculation of dividing $1 million by $115,000 assumes that your nest egg would not grow over time.

In fact, it certainly would grow, given enough time. The stock market has rebounded from setbacks over time.

So how have real investors fared in recent years?

[bigbob]

Most people are also lousy at planning, failed to save adequately for retirement, pissed away money on unnecessary things like toys and vacation trips instead, failed to take full advantage of employer 401K match and other almost free money benefits, paid out the nose to put their kids thru some expensive college instead of sending them to community college for the first two years and telling them to get a part-time and summer job, and didn’t structure their careers to be able to obtain the best benefits (e.g. pension) or educational reimbursement that would have made it easier to work their way into higher-paying jobs.

[grumpygresh]

You can get an apartment pretty cheap in Nepal.

[rktman]

Yeah, we’re at about 25% of employeed money now. If I hang around long enough for Mrs. rktman to start drawing her ss and get on medicare, things will improve. :>)

[oh8eleven]

Another article by an elitist for elitists.
Whoa, don't be so quick to condemn.
    There are a lot of people who worked their @sses off for many, many years and whose net worth is now over a million.
And believe me, the majority are not elitists.

[TangledUpInBlue]

My retirement guy gets asked this all the time. Actually, he gets asked “How much do we need to retire?” and his answer is always the same....

“How much do you spend?”

[TangledUpInBlue]

You’re not going to earn 5% in any tax free investment

[PA2SK]

Terrible article.

"65 years old and earn $115,000 a year. That's a decent annual income, but it's no king's ransom. It's enough to let you sock away good chunks of money each year. But it's not so high that it trips over income limits when it comes to saving in a retirement plan such as a 401(k)."

There is no income limit on 401k contributions. Can be making $1 million a year, doesn't matter.

"You can get closer to that goal by investing more aggressively than is recommended for a retiree. Instead of a 70-30 stocks-bonds mix, you could boost your stock allocation to, say, 100%. Vanguard investors investing 100% in the S&P 500 earned just shy of the bogey's 8.5% average annual return."

That's average return. If you're 100% stocks and there's a recession you could see half your portfolio wiped out and could easily be 5 years before you make it up. That's bad news if you have to make withdrawals for living expenses. You'll be eating into principal and never recover. Sustainable withdraw rate is 3% to 4% a year and you should be mostly in bonds. This guy is giving really dangerous advice.

If you have $1 million in your retirement account you should figure on $40,000 a year plus SS as your income and fit your lifestyle around that. Should not be too difficult in most parts of the country.

[Fightin Whitey]

Another article by an elitist for elitists

Yeah, those damned elitists!

Bernie! Bernie! Bernie!

[Obadiah]

My plan is to retire to Mexico. That way I won’t need a lot of money to last the rest of my life.

[laplata]

Hang in there. Best wishes.

[hollywood]

This is a truly dumb article. One doesn’t divide their nest-egg value by one’s final/highest annual salary to determine how long one’s nest-egg will be viable. One accounts for some level of annual nest-egg value growth, and then deducts expected annual/monthly expenses, adding inflation into the future expenses. So, if you have a $1M nest-egg growing at 8% per year, and have $60K annual withdrawals/costs and also account for a 2% annual increase/inflation on those costs over time, that $1M GROWS FOREVER! (Just be mindful of any Required Minimum Distributions).

[JoeFromSidney]

My alternative was to spend 25 years in the military and get a pension. Granted, it's a gamble. You might not live to collect it. But it's paid off for me.

[Citizen Soldier]

You’re right. My friend had $1+million invested with a broker and lost $400,000 when the market almost crashed at the beginning of Obama and end of Bush. Never got it back.

[fuente]

I always shake my head at these silly articles. If you make $115K/yr and think that you’re gonna retire and continues that $115K/yr spending...then you are probably broke to begin with...Mortgage should be ZERO...expenses should be stripped to parade rest...What about health issues and unforseen expenses. Reroofing that house at 73 is gonna be painful. $1M will last if you are drawing out $40K-$50K average in your 60s, $50K-$60K average in your 70s $60K-$70K in your 80s...by the time you’re in your 90s you have $500K-$600K left depending on average returns. The older you get, the less you should be spending on STUFF and housing. Crap man, take $200K - $300K and buy a few places and start a property management company. WHen you hit your upper 70s, start selling the property. 15-20 years worth of property value increase with a 12%-15% annual return on investment (in positive cash flow) and tax write-offs.... Then use that other $$$ to enjoy the heck out of your retirement.

[wally_bert]

Restoring a few jeeps would take care of that.

[rktman]

LOL! Oh, we’re okay. A whole lot better than a lot of folks. VERY blessed.

[1Old Pro]

If we start retirement at a market high and initial returns are lower than average, it will accelerate the decline. If you can afford to retire nearer a market low, you will probably have a smoother ride.

Ah, the old sequence of returns issue. How can one tell when the market at a high or a low?

[MichiganCheese]

The Marxists like the fake Indian want to confiscate your wealth. Whatever you have will not last as long as it should.

[wally_bert]

It wasn’t EF Hutton?

[COBOL2Java]

You can get an apartment pretty cheap in Nepal.

Yeah, but those parades can get pretty noisy... :0)