Is $1 million enough to retire? Here’s how to find out
Do you know your retirement number?
Whether you’re 25 and just entering the workforce or nearing 55 with the glimmer of retirement on the horizon, this number can take the stress out of retirement planning.
Saving for the future can seem daunting when costs for everything from housing to toilet paper have increased by leaps and bounds. But no matter where you are in your retirement journey now is the right time to reassess your future financial goals.
That's not as straightforward as it was in the days of pensions. Add in the surging costs of living, and there might be a lot of confusion over just how much you’ll need to maintain your quality of life when you’re no longer working.
Many people assume they’ll need at least $1 million in savings to last through their golden years—but with costs continuing to climb, is that enough?
Can you retire with $1 million?
While financial experts frequently suggest $1 million as a benchmark for retirement savings, there are other factors you should consider when setting your future financial goal.
Studies have indicated that $1 million can last most people around 20 years, so if you plan on retiring at 65, your nest egg should keep you covered until you turn 85. However, considering recent leaps in prices, that number may not be as accurate as it was five or ten years ago.
Also, with modern advances in healthcare, it’s not uncommon to live beyond 85 and into your nineties—and with increased age come increased healthcare costs to consider.
Instead of setting aside enough savings to build to $1 million by the time you turn 65, a safer course may be to plan on saving as much as possible in the time you have left until retirement.
That means maxing out tax-advantage retirement accounts like 401ks and IRAs and making smart investment choices while you’re still earning.
If having a set-in-stone goal number makes you more comfortable, there are several factors to consider when setting a target retirement savings amount.
How to save $1 million for retirement
It might seem like an impossible number, but you can save $1 million for retirement with careful planning and budgeting. The following steps can help you save enough to live comfortably and enjoy your retirement years.
- Max out your 401k or contribute at least as much as your employer will match.
- Invest or save tax refunds or other windfalls.
- Open a Roth IRA.
- Diversify your portfolio and invest in tax-advantaged funds like annuities or municipal bonds.
If you don’t currently make enough to max out your contributions, consider a side hustle to help you earn extra income to put toward retirement. Saving more now—no matter your age—is better than waiting.
The compound interest you’ll earn by putting money aside sooner can help you more easily meet your goals.
And, if you’re nearing retirement age, and aren’t quite ready to stop working, adding extra income to your investment accounts or savings for even a few years can help provide more safety in your golden years.
Speaking with a financial advisor, no matter where you are in your savings journey, can help you save money, invest wisely, and be confident in your future.
5 factors to consider when saving for retirement
To figure out if your number needs to be higher or lower than $1 million, consider the below factors.
1. Where you retire
You’ll need at least $1 million to retire comfortably in 147 out of the 348 metro areas, according to recent studies. Here’s what the breakdown looks like in top U.S. cities:
The most expensive U.S. cities to retire in
|Amount needed to retire
|New York City
If you live outside these areas, the number is likely closer to $1 million. But don’t expect the number to creep down much lower.
The only metro area surveyed that clocked in under $800,000 was Johnston, Pennsylvania, where one retiree could live comfortably for 20 years on $779,765.
2. Your lifestyle
Just like during your earning years, your lifestyle ultimately impacts your bottom line.
If your retirement dream includes extensive travel, fine dining, expensive hobbies like boating or RVing across the country, or spending time at the golf and tennis club, you’ll need a significantly larger nest egg than if your ideal retirement is more frugal.
Assuming you want to continue with your current lifestyle, figure out how much you need to bring in monthly, and use this number to help project what you’ll need in retirement.
The U.S. economy tends toward growth and inflation, so $1 million in 2000 had a lot more purchasing power than $1 million today.
While inflation has been historically low over the last 30 years, the recent spike in consumer pricing reminded investors that the economy can be fickle and what once might have been enough to live comfortably on might change in the future.
While it’s impossible to predict where inflation will be in 10, 20, or 30 years, padding your retirement fund by even 10% can help you navigate your golden years more easily.
4. Health costs
Planning on future healthcare costs can be difficult, but it’s important to consider this when building your retirement fund.
Depending on the type of healthcare you have during retirement and your overall health, medical expenses could eat up a large portion of your savings.
Medicare covers a percentage of healthcare costs but not everything. You’ll still be responsible for copays, prescription costs, and other out-of-pocket medical expenses.
If you experience a health emergency or have a chronic condition, your savings could disappear more quickly than you’d planned for.
Additionally, healthcare costs aren’t immune to the effects of inflation, and if consumer costs continue to rise, healthcare costs will rise alongside them.
5. Housing expenses
Where you live will also dictate how much you need to save. If you plan to move in with your family or own a home outright, your expenses may decrease.
But if you’re still paying a mortgage or plan to rent or buy a condo, house, or apartment, your costs could increase. And, if you need assisted living care, you’ll pay even more.
Don’t bank on Social Security
For most Americans, retirement savings won't be the only money available once you leave the workforce.
Though constantly under threat of cuts as well as the possibility that the fund will be drained dry in the next couple of decades, Social Security will likely still be around in some form once you retire.
The amount you receive depends on the amount you put in during your work years. Currently, the average Social Security payout is $22,083.24 per year.
While you shouldn’t base your retirement savings goals on the presumption of a Social Security bump, once you do retire, receiving that monthly check might take some of the strain off your savings account.
And the longer you wait to collect Social Security, the higher your payout.
However, don’t let Social Security income deter you from saving. Since healthcare and inflation costs are unpredictable, it’s important to have your own fund to dip into outside of Social Security.
To find out how much you’re likely to earn during Social Security, you can use this social security calculator.