I guess my big query is what if the $1 mil IS your only pension? I will get some small amount from my other country I worked in, but it won’t be much.
Is it enough?
It depends on a lot of factors:
- how old are you (65? 62? 55?), which links to
- how many years of retirement do you expect to have
and
- would you be happy if you had just enough money, or do you want to have some left in your estate for family (or safety, in case you live longer than expected.
- what is your expected burn rate?
- what is your guess at inflation?
- how much “risk” are you willing to take on the principal in order to mitigate inflation eating away at the initial million bucks?
- and do you have any other significant income, like Social Security or pensions.
Basically, there are guidelines for spending which aren’t a sure thing. Suppose you invested in a conservative mix of stocks and some bonds. And, also suppose you spent roughly 3% to 4% of whatever you had on hand each year. The hope is that the amount the investment grows will allow you withdraw this much while compensating for inflation, and having it last 25 or 30 years.
So, figure the million bucks is worth an inflation adjusted 40,000 per year. You’ll eat into most of it by the end of your life, but YMMV, because of some of the factors I mentioned above. That amount is real helpful in most parts of the country, but in metro areas or the coasts, it will likley become tight over time.
But, things can go wrong—like a bear market combined with a burst in inflation. Having a million bucks is a lot better than not having it, but it isn’t an absolute guarantee of security through a long retirement.
Is that helpful?