Do You Really Need $1 Million to Retire?
You do not necessarily need $1 million to retire. The amount you need depends on what you spend, what income you can count on, and how much your savings must provide after taxes.
Years ago, Cameron wanted to catch a huge bullfrog in the pond outside our house. I helped put together a plan involving a net and a bucket. When we finally caught it, he was thrilled. He even kissed it before eventually returning it to the pond.
And no, he did not get warts.
Some myths stick with us because we have heard them so often. In retirement planning, one of the biggest is this: “I need a million dollars before I can retire.”
A million dollars can be a savings goal. It cannot tell me, by itself, whether you are ready to leave work.
Why can someone retire with less than $1 million?
I think about a couple of teachers we work with. They had saved about $890,000, which was a tremendous accomplishment. But they were disappointed because they had not reached their million-dollar goal.
Meanwhile, their combined pensions and Social Security benefits provided more than $10,000 a month. In their situation, that income was enough to support the lifestyle they described.
They were focused on the number they had missed. I was focused on the income they already had.
I explained that someone with a larger investment account but no pension might need to draw much more from savings each year. More in an account does not automatically mean more financial flexibility.
That does not mean their savings had no purpose. Home repairs, replacing a car, changing healthcare needs, and future family goals still deserved attention. But their investments didn't have to carry the entire weight of everyday retirement spending.
How do I figure out how much I need to retire?
I start with the life you want your money to support. What does it cost to live comfortably today? What might change once you have more time? What income will continue after your paycheck ends?
The difference between your spending and your dependable income helps us understand what your savings must cover.
For example, someone who needs $7,000 a month and receives $6,000 in ongoing income faces a very different planning challenge than someone with the same expenses and only $2,000 coming in. Those figures are just an illustration, but they show why one savings target cannot fit everyone.
Then I want to consider taxes, inflation, healthcare, unexpected expenses, and how long the money may need to last. For a couple, I also want to understand how income and expenses could change if one spouse dies.
Does a strong portfolio mean I am ready to retire?
Investment performance matters. So does how those investments will support your income.
A growing account does not answer every question. Can you cover your bills? Have you planned for taxes? What happens when the house needs a major repair? How will you handle a difficult market while making withdrawals?
I do not want your confidence in retirement to rise and fall with every daily account update. I want it grounded in a plan you understand.
Before you decide you are behind because you haven't reached a particular number, take a closer look at your circumstances. Your retirement may be closer than you think. Or you may discover a gap worth addressing while you still have time.
If you would like help connecting your savings, income, and retirement goals, reach our team atLegacyRetirementGroup.com.
The information provided is for educational purposes only and should not be considered tax or legal advice; please consult with a qualified tax professional regarding your individual circumstances or visit IRS.gov for additional information.