Save a million dollars for retirement…it’s everyone’s dream, right? Man, if you had a million bucks in your retirement accounts at retirement, think of what you could do!
- Take exotic vacations every month
- Go out to eat without ever thinking about the bill
- Buy lavish presents for all your friends and be the most beloved old people on the planet!
Well…maybe you could and maybe you couldn’t. It basically all depends on your age…
What If You Save a Million Dollars for Retirement? Will It Be Enough?
What do I mean, “It depends on your age?” What does age have to do with it? A million bucks in a million bucks, right?
Because of constant economic growth and the establishment of monetary policy (don’t know what monetary policy is? Here’s a link. It’ll solve your sleeping troubles too… ;)), citizens all around the world experience a slow, silent killer. His name? Inflation.
On average, the price of goods increases by 3% each year
Sooo…that cheap bottle of shampoo that costs $1 today…with a cost increase of 3% each year, it’ll cost you…
- $2.00 in 23 years,
- $3.00 in 37 years,
- $4.00 in 46 years,
- $5.00 in 54 years, and
- $6.00 in 60 years
Six bucks instead of one dollar? Doesn’t really seem like that big of a deal, right? That’s because we’re starting with small dollars.
Basically, what we’re saying is that in 60 years, the value of your dollar will be cut not in half, not 1/3, but 1/6. So if you’re 20 years old today, that million dollars when you’re 80, it’s actually like $166,000. Eeek! Well that’s not quite the same, huh?
So what if you’re 65 right now? What if you’re 35? 25? What if you save one million dollars for retirement? What will that get you? Will it last until you die?
Glad you asked. Let’s take a look.
Oh, but before we do, here are the assumptions I made about your future retirement:
- You have no debt going into retirement
- Target a $40,000 cost/year lifestyle
- Inflation increases by 3% each year
- Your investments earn 7% per year in retirement
- The social security program dies tomorrow – in other words, I didn’t factor in those dollars since it’s definitely not a given that we’ll see any of it
You’re 65 Right Now. What Will $1 Million Do For You in Retirement?
Are you 65 years old? Already have a million bucks stashed away in your retirement accounts? Good for you!
Since you have no debt and have $40,000 a year coming in, there’s plenty of money to go around.
- You get to live a normal, average life (you know, buying groceries, driving a new-ish used car, getting a pair of your favorite white New Balance tennis shoes each year…), PLUS
- Take a two week trip to Europe each year
- Enjoy a 6-month RV trip to Florida – yes, every year!
- And, even with all this, you still won’t run out of money until you’re 158 years old.
I think it’s safe to say that your plan to save a million dollars for retirement is working out quite nicely. Enjoy your golden years!
(Think the graph above is pretty fricken scchhhhweeeeet? Cool, cause I made it. Check it out here to enter your own numbers. See how much money you REALLY need to retire when you want to. — “Will You Have Enough Money to Retire? Use This Free Tool to Find Out!“)
You’re 55 Right Now. What Will $1 Million Do For You in Retirement?
Alright, so you’re 55 and you’re targeting the age of 65 for retirement. Per the wisdom of your broke friends, you’ve been told to save a million dollars for retirement. I know your retirement years won’t be quite as blissful as today’s 65 year-olds, but let’s see how you fair.
Just like today’s retirees, you get to live a normal, average retirement life without trouble. And you’ll also get to…
- Take a two week trip to Europe each year, and
- Enjoy that 6-month RV trip to Florida every year
But…it’s not quite a slam dunk that you’ll never run out of money in retirement. If everything goes as expected, your nest egg will plummet to zero when you’re 99 years old. So…as long as we don’t have any extensive market crashes or experience an exceedingly long life into your hundreds (crossed fingers that you die at 99…;)), then you should be able to experience some life in retirement and still be left with some cash by the time you die.
You’re 45 Right Now. What Will $1 Million Do For You in Retirement?
You’re 45, and you’re 20 years away from retirement. You’ve probably got about $250,000 in retirement now, and if things go as planned you’ll be able to save a million dollars for retirement (once those money-grubbing kids leave the nest anyway!!). But…will that be enough? After looking at those 55 year-olds, I suspect you’re nervously shifting in your chair.
You should be.
With a million dollars in retirement, you’ll:
- Be able to live a normal life without worry, but…
- You won’t be taking that 2-week trip to Europe each year, and
- That 6-month trip to Florida will put you in a bit of a financial pinch still
If you try to do everything that today’s retiree is doing, your money will run out when you’re 86 years old. Don’t think you’ll live that long? Think again. If you make it to 65 years old, there’s a 30% chance that you’ll live to 90. So if you’re in good health today, it’s not really advisable to spend so much that your money will run out at 86…
Instead, by foregoing that two week trip to Europe, your money will last till you’re 91. It’s still not a sure thing, but it’s better than being destitute at age 86.
You’re 35 Right Now. What Will $1 Million Do For You in Retirement?
Finally, your student loans are paid for and you’re able to start saving for retirement! And…now I’m probably going to tell you that you need more than a million bucks socked away for those golden years.
Spend like today’s 65 year old, and your money will run out at 79 years old. Not good.
If you want it to last, you’ll have to bag all the vacations and go nowhere…ever. With that, your money will last until you’re 91.
So what are the chances that you’ll live to 91?
I was curious (since Liz and I are both 33), so I ventured over to LongevityIllustrator.org – a fancy little site that shows you how long you’ll likely live based on your age and health.
Turns out, Liz has a 60% chance of living until she’s 90, and I’ve got a 50% chance! Wow! So, it’s pretty likely that at least one of us is going to breeze into our 90’s! Crazy. If you’re in good health today…you definitely want to target a nest egg of more than a million…
You’re 25 Right Now. What Will $1 Million Do For You in Retirement?
Here comes the gauntlet! If you’re 25 and you save a million dollars for retirement, how long will it last?
A whopping 9 years…
Here’s what you’d have to do to make it last:
- Don’t go on any vacations…ever, and
- Live on today’s equivalent of $20,000 a year
That’ll hold off the welfare boogie man until age 90…which we already established (with Liz and my odds of living to that age) is a number that you’ll likely get to.
So what’s your solution? Target a much larger number. Something like $2-3 million. I know it sounds impossible, but since you’re young it’s much more achievable. You just need to start saving now!
If You Save One Million Dollars For Retirement…You’d Better Be Old
So what’s the verdict? If you’re between the age of 55 and 65 and are planning to save a million dollars for retirement, you’re probably fine. If you’re younger than that, you need to target a bigger number (or get really good at doing nothing and couponing).
How much should your target number be? Easy, just download my Retirement Calculator Tool.
- Enter your current age
- Your desired retirement age
- How much you currently have saved for retirement
- The amount you’re investing each month, and
- Your average monthly expenses today
And presto! My chart will show you how much your retirement fund will grow to and how long it will last.
If you run out of money by age 66…you might want to sock a bit more away each month! On the flip side, if your money will last till you’re 200, you might want to actually spend some of it and enjoy it while you’re alive and able to move!
So what about you? Were you going to save one million dollars for retirement? Is that going to be enough??
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.