Unbelievably, $2 million may not be sufficient in retirement. Many things have changed for retirees and those who are getting close to retirement, with inflation at 40-year highs and the stock market significantly down.
When individuals begin to consider retirement, they approach it from various perspectives. We’ve written about how to retire at 50 and at other ages, so they might be wondering if they can do so at a particular age. Alternatively, they may just be curious about when they can retire with their present savings and spending patterns.
There is an alternative approach to bringing up the subject of how long $2 million will last in retirement. People who have been saving for retirement for some time begin to get a good idea of what their potential retirement investment balances will look like as they approach their projected retirement date. And it makes sense to ponder how long that equilibrium might endure.
Let’s look at a hypothetical 60-year-old couple who want to retire as soon as possible. They believe they are probably ready and have saved $2 million, but they want to be as sure as they can be. Their investments are primarily composed of stocks, which yield an average annual return of approximately 7%, and bonds, which yield an average annual return of 3%. Three quarters of their investments are in IRAs. Their goal is to delay taking their combined $65,000 in Social Security benefits until they reach full retirement age. We also assumed they will live until age 90.
Regarding expenses, they have paid off their house, and they estimate that they will spend $95,000 per year, before taxes, in a conservative (high) estimate.
These figures were calculated using an assumed yearly inflation rate of 3%, which has significantly increased over the previous year. Even though inflation is currently above 8%, we don’t think it will remain there for very long and will eventually hover around 3%. We ran some scenarios to see how long $2 million will last in retirement for this couple using the WealthTrace Retirement Planner, which you can use by registering for a free trial of WealthTraces retirement planning software. Let’s see how things look for them:
It looks pretty good for them so far. As retirement approaches, their total investment balance in inflation-adjusted dollars does decline, but not significantly. In a similar vein, the following is how their expected income sources and expenses compare:
This is another good sign for them. The secret to a comfortable retirement is that their retirement income exceeds their annual expenses. It may surprise you to learn that even though their income consistently exceeds their expenses, their investment balances are gradually decreasing. How can this be? The answer is inflation. Every year, inflation erodes a portion of the portfolio. WealthTrace presents the values in inflation-adjusted terms to help investors realize their true purchasing power.
Okay, so it might not exactly be news that a couple with $2 million in debt should be able to survive for about thirty years on $95,000 annually. Lets push on this a bit and see what happens.
Initially, in order to truly test their plan, they should aim to see at least an 80% chance of success when implementing a Monte Carlo simulation for retirement. With WealthTrace, we can accomplish this, and when we do, things appear to be going well:
The Monte Carlo simulation runs through 1,000 potential scenarios. In 14% of these scenarios they run out of money. Due to the risk associated with stocks, situations where people run out of money arise, as we have already witnessed in 2022.
Is $2 million enough to retire comfortably? This is a question that many people ask themselves as they approach their golden years. The answer, of course, depends on a variety of factors, including your lifestyle, your expenses, and your investment returns. However, with careful planning and a bit of luck, $2 million can provide you with a comfortable retirement.
In this article, we will explore how far $2 million can go in retirement. We will also discuss some tips for making your retirement savings last longer.
How Long Will $2 Million Last in Retirement?
The answer to this question depends on a number of factors, including:
- Your lifestyle: If you have a modest lifestyle, you will likely be able to stretch your retirement savings further than someone who has a more extravagant lifestyle.
- Your expenses: Your expenses will also play a role in how long your retirement savings last. If you have high expenses, you will need to withdraw more money from your retirement accounts each year, which will deplete your savings faster.
- Your investment returns: The rate of return on your investments will also impact how long your retirement savings last. If you earn a high rate of return, your savings will grow faster, and you will be able to withdraw more money each year without depleting your principal.
Here is an example of how long $2 million can last in retirement, depending on your annual expenses:
| Annual Expenses | Retirement Savings Last |
|---|---|
| $50,000 | 40 years |
| $60,000 | 33 years |
| $70,000 | 28 years |
| $80,000 | 25 years |
As you can see, the higher your expenses, the shorter your retirement savings will last.
Tips for Making Your Retirement Savings Last Longer
There are a number of things you can do to make your retirement savings last longer. Here are a few tips:
- Start saving early: The earlier you start saving for retirement, the more time your money has to grow. Even if you can only save a small amount each month, it will add up over time.
- Invest wisely: Choose investments that have the potential to grow over time. Stocks and mutual funds are good options, but you may also want to consider other investments, such as real estate or precious metals.
- Live below your means: This is one of the most important things you can do to make your retirement savings last longer. If you can live below your means, you will have more money to save for retirement.
- Work part-time in retirement: If you are able to work part-time in retirement, it can help you supplement your income and make your retirement savings last longer.
- Delay Social Security: If you can afford to delay Social Security, you will receive a higher monthly benefit when you do start collecting.
- Downsize your home: If you have a large home, you may want to consider downsizing to a smaller home in retirement. This can save you a significant amount of money on your housing costs.
$2 million is a significant amount of money, and it can provide you with a comfortable retirement if you plan carefully. However, it is important to remember that your retirement savings will only last as long as you make it last. By following the tips above, you can increase your chances of having a long and happy retirement.
Frequently Asked Questions
How much do I need to save for retirement?
The amount you need to save for retirement depends on a number of factors, including your lifestyle, your expenses, and your investment returns. However, a good rule of thumb is to save 10-15% of your income each year.
When should I start saving for retirement?
The earlier you start saving for retirement, the better. Even if you can only save a small amount each month, it will add up over time.
What are the best investments for retirement?
There are a number of good investments for retirement, including stocks, mutual funds, and real estate. However, the best investments for you will depend on your individual circumstances.
How can I make my retirement savings last longer?
There are a number of things you can do to make your retirement savings last longer, including living below your means, working part-time in retirement, and delaying Social Security.
What are some common retirement mistakes?
Some common retirement mistakes include not saving enough money, retiring too early, and not investing wisely.
Additional Resources
- The Motley Fool: How Long Does $2 Million Last Once You Retire?
- Yahoo Finance: $2 Million Will Last You This Long if You Retire at 55
- SmartAsset: Is $2 Million Enough to Retire on at 55?
Disclaimer
I am an AI chatbot and cannot provide financial advice. The information provided in this article is for general knowledge and informational purposes only, and does not constitute professional financial advice. It is essential to consult with a qualified financial advisor for any financial decisions or investments.
WealthTrace Financial Planning & Retirement Planning Blog
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Doug Carey President WealthTrace
Key Points
- Coming into retirement with a $2 million war chest (or nest egg, depending on how you envision your post-retirement life) gives you a great deal of flexibility. In this piece, we examine retirement scenarios using the publicly accessible WealthTrace Retirement Planner. You can make your own precise retirement plan by registering for a free WealthTrace trial.
- Everyones situation will be different. Your retirement goals will determine how long $2 million will last you in retirement.
- Any long-term investment return scenario can be effectively stressed tested by running a Monte Carlo simulation.
Believe it or not, $2 million in retirement might not be enough. With inflation at 40+ year highs and the stock market down substantially, a lot has changed for both retirees and those approaching retirement.
When individuals begin to consider retirement, they approach it from various perspectives. We’ve written about how to retire at 50 and at other ages, so they might be wondering if they can do so at a particular age. Alternatively, they may just be curious about when they can retire with their present savings and spending patterns.
There is an alternative approach to bringing up the subject of how long $2 million will last in retirement. People who have been saving for retirement for some time begin to get a good idea of what their potential retirement investment balances will look like as they approach their projected retirement date. And it makes sense to ponder how long that equilibrium might endure.
So how long will $2 million last in retirement?
Let’s look at a hypothetical 60-year-old couple who want to retire as soon as possible. They believe they are probably ready and have saved $2 million, but they want to be as sure as they can be. Their investments are primarily composed of stocks, which yield an average annual return of approximately 7%, and bonds, which yield an average annual return of 3%. Three quarters of their investments are in IRAs. Their goal is to delay taking their combined $65,000 in Social Security benefits until they reach full retirement age. We also assumed they will live until age 90.
Regarding expenses, they have paid off their house, and they estimate that they will spend $95,000 per year, before taxes, in a conservative (high) estimate.
These figures were calculated using an assumed yearly inflation rate of 3%, which has significantly increased over the previous year. Even though inflation is currently above 8%, we don’t think it will remain there for very long and will eventually hover around 3%. We ran some scenarios to see how long $2 million will last in retirement for this couple using the WealthTrace Retirement Planner, which you can use by registering for a free trial of WealthTraces retirement planning software. Let’s see how things look for them:
It looks pretty good for them so far. Their total investment balance in inflation-adjusted dollars does decrease slightly as retirement goes on, but not in an alarming way. Similarly, heres what their income sources versus expenses are projected to look like:
This is another good sign for them. The secret to a comfortable retirement is that their retirement income exceeds their annual expenses. It may surprise you to learn that even though their income consistently exceeds their expenses, their investment balances are gradually decreasing. How can this be? The answer is inflation. Every year, inflation erodes a portion of the portfolio. WealthTrace presents the values in inflation-adjusted terms to help investors realize their true purchasing power.
Okay, so it might not exactly be news that a couple with $2 million in debt should be able to survive for about thirty years on $95,000 annually. Lets push on this a bit and see what happens.
Initially, in order to truly test their plan, they should aim to see at least an 80% chance of success when implementing a Monte Carlo simulation for retirement. With WealthTrace, we can accomplish this, and when we do, things appear to be going well:
The Monte Carlo simulation runs through 1,000 potential scenarios. In 14% of these scenarios they run out of money. The scenarios where they run out of money occurs because of the riskiness of stocks, as we are seeing happening so far in 2022.