$1,000,000 is a common benchmark when it comes to retirement goals, and many resources will recommend this number as how much you should save before you retire.
However, while a million dollars may sound like a great goal to strive for, the truth is that a million probably isn’t going to be enough for you to live a comfortable and enjoyable retirement.
To better understand how long a million dollars will actually last in retirement, we’ll take a look at some of the factors affecting how much retirement costs.
1. Cost of Living
The first problem with setting a million dollars as the standard across the board for how much people should save for retirement is the fact that the cost of living varies dramatically depending on where you are located.
A person living in a small town in Mississippi will be able to make one million dollars last a lot longer than a person living in New York City or San Diego. In determining whether a million dollars will be enough to retire on, it’s crucially important to take into account the cost of living for where you are located.
2. Your Lifestyle
Some people are able to get by perfectly fine on less than $20,000 a year and are quite happy doing it.
Others have become accustomed to lifestyles that cost six figures just to maintain. While it’s one thing to calculate how much you need to save just to survive post-retirement, it’s another thing entirely to calculate how much you need to save to pay for the lifestyle you have become accustomed to.
Since this figure is going to be different for every person, setting a single benchmark of a million dollars that applies to everyone is largely ineffective.
Inflation is another ever-present force to take into account, slowly eroding the value of the money we set aside over time.
The good news is that investing your money in companies rather than keeping it in cash allows you to bypass inflation. However, this does not change the fact that inflation skews the true value of benchmarks such as a million dollars.
The truth is that the buying power of one million dollars today is not going to be the same as the buying power of a million dollars 20 years from now. For this reason, it’s a good idea to factor in the average inflation rate when setting your retirement goals.
Every person’s retirement needs are going to be different, and how much you need to retire is going to be influenced by your location, your lifestyle, inflation rates, and a wealth of other factors.
So, Can You Retire On a Million Dollars?
However, for the average, everyday person, is one million dollars going to enough to retire on?
The sobering answer is “probably not”.
There are a variety of reasons why one million dollars isn’t likely to be enough for the average person to retire on, from increased life expectancy to rising costs.
However, the important takeaway is that you need to sit down and calculate your own goal based on your own situation rather than relying on so-called “standard” benchmarks such as one million dollars.
Once you calculate that figure by determining how much money you want to have available each year, multiplying that number by the upper end, an optimistic estimate of the years you expect to be in retirement, and factoring in inflation, go out and start saving towards that goal a little bit at a time (my calculators can do all of this for you).
Though the number you come up with may seem staggering at first, with a sound investment strategy and plenty of discipline you can get there in little time at all.
For a quick way to calculate what you’ll need, use my free retirement calculator.