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?

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Actual Returns By Vanguard Investors

Take workers with 401(k) accounts and similar retirement savings plans run by Vanguard. Plan members whose portfolios were invested 70% in stocks and 30% in bonds had average annual returns in the five years ended Dec. 31, 2018 of 5.6%. The S&P 500 grew at an 8.5% annual pace.

That's a reasonably representative period of time. It had down markets as well as up markets.

So in beefing up your retirement planning, let's use a 5.6% average annual rate of return for forecasting how your portfolio would behave going forward.

[Truth29]

Before or after the next Democrat Marxist President?

[z3n]

Getting investment clicks is big business right now.

[Edward Teach]

I’m looking at Freedom 95 here.

[minnesota_bound]

$1 million divided by $50,000 = 20 years or 40 years at $25,000 + the SS money or SS money plus the $1 million invested at 5% in some no tax investment. You would not run out of money.

Most do not make $115,000 a year. This is like the articles in Forbes or Fortune where the writer assumes everyone is making lots of money and $115,000 is poverty wages.

[MeneMeneTekelUpharsin]

Just keep working...

[rktman]

Couple weeks. :-)

[John 3_19-21]

Depends on how you live.

[z3n]

"This is like the articles in Forbes or Fortune where the writer assumes everyone is making lots of money and $115,000 is poverty wages."

~~~

No, the writers want clicks from people who make more than $45,000/yr because the ads on those pages are run by fund managers who aren't interested in those people

[Don W]

Most don’t make even HALF that.

Another article by an elitist for elitists.

[laplata]

“Couple weeks. :-)”

I agree. It would be easy to go through a million in a very short time.

[olepap]

A million isnt worth much when a filthy, disease infested democrat deliberately crashes the market

[Eric in the Ozarks]

I’ve owned a Porsche already...

[JusPasenThru]

Bookmarked.

[DuncanWaring]

If you only spend a dollar a year, it will last a million years.

[pgyanke]

We’re doing Vanguard ads now?

Note... Let’s assume $115,000/yr was the pre-retirement income. Statistics suggest that about 75% of that should be needed in retirement to maintain standard of living due to changes in lifestyle and taxation. That gives us an assumed income need of $86,250/yr.

Then, there’s Social Security. Let’s go with about $2,500/mo for an average... and you’re taking it early at age 65. That gives us a need of about $56,250/yr from the portfolio. If we’re assuming a growth rate of 5.6%/yr, you should see a declining balance over time... initially not rapid but eventually growing in pace.

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.

Have a nice day.

[READINABLUESTATE]

“Just keep working...”

As long as possible.

[hanamizu]

Me, I’m just clipping my stock coupons...

[MeneMeneTekelUpharsin]

You’re going to save up all that money and “stuff” and some of your children are going to disappoint you and you’re not going to be able to leave it to them anyway. Seen it happen.

[Destroyer Sailor]

Most of the writers live in high cost living northeastern states so that’s why you see the incomes they use. I live in the less expensive areas of the country and can survive on much less. But you get the idea.