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Can I Retire on $1 Million?

Can I Retire on $1 Million?

September 14, 2017

One of the questions I get on a very regular basis from clients is "How much money do I need to be able to retire successfully?". This is a very individualized and personal question, as it is significantly correlated to how much money you want to spend and the lifestyle you want to maintain in retirement. I have clients who have no debt, and live relatively modest lifestyles in retirement that are very comfortable living on $3,000-$4,000 a month of net cash flow. I also have clients that have multiple homes, travel extensively, and like to pursue giving generously to their kids and/or charities, who spend $12,000 a month or more in retirement. 

 Many people aspire to accumulate $1M by retirement, thinking that that is certainly enough money to live comfortably the rest of their lives. However, depending on their spending levels, inflation, and life expectancy, it may not be. A new report from GOBankingRates measures how long $1M would last for retirees 65 and older on a state by state basis. It did this by looking at the Bureau of Labor statistics average annual expenditures for people in that age group, and included separate annual expenses for healthcare, housing, groceries, transportation, and utilities.

 It turns out $1M doesn't last very long if you want to retire in Hawaii, California, or New York, where the money will last approximately 12 to 17 years. However, if you retire in one of the lower cost states, your money could last as long as 26 years. It is important to understand that these figures don't take into account entertainment, travel, or inflation. This is especially important as inflation for retirees tends to go up at a faster rate than the general rate of inflation, especially when we consider inflation for travel, leisure, and healthcare costs. Healthcare inflation is projected to rise at an annual rate of nearly 5.5% over the next 10 years according to HealthView Services. This is why we generally project health care expenses separately, with a higher rate of inflation than general expenses during retirement in our client's retirement plans.

 It is also important to remember that retirement lifestyle is generally supported by two pools of money. The first is income sources or paychecks that you get from Social Security, employer pensions, or government sources such as PERS or STRS. The second source are the investment assets that are used to create additional income in retirement. The study above only takes into account the assets side of the picture. It is still helpful to know what costs could potentially be in the area you wish to retire, so we have included a link to the study below so you can compare costs between the various states. 

 As with anything, more information helps you make better decisions, and we at Impel Wealth Management look forward to continuing to help you have discussions, and to do the research to make the transition to retirement for you as joyful and productive as we possibly can. If you have questions about where you are looking to retire and how much it's going to take to live comfortably once you get there, please let us know and we can help you determine what is needed to "Move Forward" towards your goal.

How long $1 Million Will Last in Retirement in Every State