Is $1 million enough for retirement? Experts say no

news7f02/27/2023

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Is $1 million enough for retirement? Experts say no

There are few guarantees in retirement. But it’s likely you’ll need more money than you’re saving at the moment, financial advisors say.

Of course, how much you really need depends on a multitude of factors: where you live, your fixed costs, the type of lifestyle you want to lead, your age, medical expenses, who else you support. no, how much did your spouse save, Social Security payments, etc. Then there’s inflation, return on investment, and other unknowns to consider. There is no universal savings figure to work towards.

Michele Lee Fine, founder and CEO of Wealth consulting platform. But the rising cost of living means it may not be enough anymore, especially in expensive cities like New York, where Fine is based.

“While this is still an exceptional level of achievement, it remains a question of whether the money is sustainable as a source of lifetime income, given the improved life expectancy and high inflation”.

Alvin Carlos, Certified Financial Planner (CFP) and Managing Partner at District capital management, recommends retirees aim for nearly $2 million, double the traditional standard. A 2021 retirement survey from Schwab shows many feel the same way, with average workers saying they need $1.9 million to retire. And that’s for those who are about to retire now — the number is likely to rise even higher for young people who still have decades in the workforce.

“Even if you can live on $3,000 a month to cover living and travel expenses, you still need to spend money on home repairs, property taxes, healthcare costs,” says Carlos. health and possibly the cost of long-term care.”

That’s alarming, since the average full-time American worker with a 401(k) fund spent $35,354 last year, according to Vanguard (average, skewed by high earners, slightly better: about $141,542).

The current economy is setting a new standard for retirement: Inflation and turbulent stock market is getting worse Retirement Crisis in America, as young workers and retirees alike grapple with the higher cost of living, from housing and groceries to medical care. It leads to a The outlook is increasingly negative for many Americans that they can cover their current bills — never mind being able to retire comfortably someday.

Of course, you can save under $1 million and still retire—as is the case with many current retirees. But financial experts say workers need to save more than ever to feel comfortable and confident in retirement.

Gates Little, president and chief executive officer of Southern Bank Company, said: “A million dollars isn’t what it used to be, but it can still provide a comfortable retirement life if done right. That said, “if you’ve been making $100,000 annually for most of your work, you’ve probably gotten used to a much more laid-back lifestyle than a $1 million pension can. bring.”

How to prepare for retirement

In general, advisors suggest a goal of saving 10% to 15% of your income for retirement, starting in your twenties. But there is a huge difference and many people cannot afford to save 10% of their income every month. Many millennials and Gen Zers say they no savings points for retirementdue to the increasing cost of living and other existential threats.

But it’s better to save even a little for the future than nothing; it’s very unlikely that there will come a time when an ordinary person wishes that they were saved less than money. Carlos says: If saving feels difficult, aim for a smaller amount or percentage each month—even $20 or 1% of your income is a solid start. Don’t let the $1 million+ figure stop you.

“If you don’t contribute to a 401(k), contribute 3% or 5%,” he says. “You can also automatically set your contributions to increase by 1% or 2% per year so you don’t have to worry about that.”

Another principle, Benjamin Westerman, CFP and CPA, and executive vice president of wealth management at OneDigital: Set a goal to save 20 times your annual spending over the course of your career. This can be easier if you account for more than 10 to 15% of your income each year when you are struggling to pay the bills.

“By achieving this goal, combined with Social Security benefits, you can enjoy the same standard of living in retirement as during your working years,” says Westerman. “If you’re not sure how much you spend annually, don’t worry. You can confidently do the opposite and use a 4% to 5% withdrawal rate on your investments.”

So if you save $1 million, you can withdraw $40,000 to $50,000 a year in retirement. That will be more than enough for some people, depending on where they live and how much they cost.

All that said, meet with an advisor and create a personal financial plan that incorporates your (or your family’s) specific goals, income, debt, net worth, etc. is crucial for anyone looking to retire well, says Drew Parker, creator of The Complete Retirement Planner.

“Trying to give anyone/everyone a specific amount of money to save for retirement is failing them,” says Parker. “When it comes to finance, no one needs to rely on guesses, assumptions, general standards, or any advice that makes broad generalizations like specific goals.”

And remember, even if you can’t save much now, that’s not always true.

This story was originally featured on Fortune.com