How To Retire With $1 Million in Savings
Over 58% of Americans think $1 million is enough for a retirement plan.
That estimate is probably an outdated financial figure from another economic era.
Some retirement experts believe that with current inflation rates, tax codes, and cost of living expenses, you might need at least $3 million to $5 million to realistically fund a retirement plan.
However, big things start in small ways.
Let’s start with $1 million. How can you retire with $1 million dollar nest egg?
The best way to save a million dollars for retirement is to start planning as early as possible. (You should be doing this now. And, started long ago.)
About 1-in-3 Americans have $0 saved for their retirement. Over 50% of Americans have about $10,000 saved for retirement.
You’ll need a retirement fund, a strategically calculated weekly, monthly, and annual cost of living plan, and savings strategies to help you hit that $1 million goal.
It’s possible.
Before we dive into all of that, do you really know the meaning of the word, “retirement?”
What is a Retirement Plan?
A retirement plan is basically a self-initiated income replacement fund and strategy that is designed to last throughout the entirety of retirement.
According to a 2019 U.S. Census Bureau, the average retirement age for men is 65. For women, it’s 63. (Image courtesy AFGE via CC BY 2.0)
Most people retire by their mid-60s.
So, unless you plan to semi-retire and work part-time, retirement means completely retiring from working life and paying annual living expenses by strategically and periodically withdrawing from your retirement fund.
This definition begs another question – how long do you think you will live?
Think about it. Your retirement plan must sustain you throughout your entire retirement.
Otherwise, you could outlive your retirement fund.
If you retired at 63 and your retirement fund became depleted at age 78, what would you do?
You need to calculate how long your retirement will last, live in a city where your retirement will last the longest, save money towards your retirement every month (which you should be doing now), and dedicate investments against your retirement funds to supplement it as much as possible.
Retirement Cost of Living Expenses and Planning
I hate to break it to you, but the $1 million dollar retirement nest egg formula is really just a ballpark figure.
It’s a ballpark estimate that may have been more apt in the 1980s or 1990s.
The cost of living, inflation, and government taxation increase incrementally in most modern cities every year.
So, your retirement expenses this year may become woefully inadequate a decade from now.
The average retiree will need at least $40,000 annually to cover their cost of living expenses in most large and medium-sized American cities.
Just as in working life, you must calculate how your retirement will pay for rent or a mortgage, food, car maintenance, clothing, and so on.
Now, and in the far future.
A million dollars will only be useful to you if you strategically plan out your expenses and how long $1 million will last you.
How long would it last you wherever you decided to live?
Retirement Living
Generally speaking, $1 million dollars might last you anywhere from 12 to 19 years in most American cities.
Remember, a retirement fund is basically a self-appointed income replacement or living expense fund.
You’ll need to withdraw at least $40,000 annually just to pay your living expenses throughout retirement.
So, you’ll need to live somewhere where withdrawing $40,000 annually will stretch your $1 million retirement fund the longest.
For example, $1 million will last about 12 years if you retired in Hawaii.
However, if you retired in any of these states, $1 million could last as long as 26 years:
- Arkansas
- Michigan
- Mississippi
- Oklahoma
- Tennessee
(Lisbon, Portugal) Adventurous retirees retiring abroad could spend $26,400 annually if they strategically chose a city suiting their needs. An annual $26,400 retirement fund would last 38 years. The #1 retirement city for expatriate retirees in 2019 was Portugal.
Take the time to brainstorm where $1 million will last you the longest in retirement.
Then, you won’t have to worry about trying to raise $3 million, which is probably a more realistic retirement goal in the 21st century.
OK. Now you know that the quickest way to a $1 million retirement fund is planning, planning, planning and location, location, location.
So, how to go about raising $1 million for retirement?
Hint: you should have started a long time ago.
Savings and Investments
Your best option for amassing a $1 million dollar retirement fund is to begin funding it yourself as early as possible.
And, having several sources of supplemental income.
It’s a lot easier said than done. The average American makes about $50,000 annually.
According to the U.S. Bureau of Labor Statistics, most Americans take home a $936 weekly salary, or $49,000 annually, at best.
No one is going to fund your retirement but you.
Unfortunately, there too many x-factor variables involved, like inflation, interest payments, or financial emergencies, to assume you’ll succeed just by saving alone.
We’ll assume your savings accrue a 7% annual interest. If you started saving $300 monthly at age 30 until you were 67, you might get to $1 million.
However, if you are in your 40s or 50s, you’ll have to save several thousand dollars monthly just to hit that $1 million retirement mark.
There is no hard and fast metric when it comes to monthly savings. Save as much as you can as early as you can.
Ask if your employer offers any kind of retirement fund with matching contributions.
If you make $50,000 and 3% of your pay is added to your retirement fund, and your employer matches that, it adds up to $1,500 annually.
You also have Social Security if you qualify. Many civil servant vocations offer an automatic pension after 20 or 30 years of service.
Start considering modest investment ideas now that could pay serious returns decades from now.
Brainstorming ways to add to your own monthly savings will help you reliably build a $1 million retirement nest egg sooner than later.
Start such planning as early as possible.
Get a Retirement Planning Advisor
Don’t make potential retirement plans or calculations alone.
You don’t need to consult an expensive financial advisor. Someone at your place of employment might be able to help. Or, refer you to an affordable advisor.
There are many financial advisors near you who can help you with basic retirement fund planning as well.
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Allen Francis is a full-time writer, prolific comic book investor and author of The Casual’s Guide: Why You Should Get Into Comic Book Investing. Allen holds a BA degree from Marymount Manhattan College. Before becoming a writer Allen was an academic advisor, librarian, and college adjunct for many years. Allen is an advocate of best personal financial practices including saving and investing in your own small business.
