When I read that the median retirement savings balance among Americans 65 to 74 was just $200,000 as of 2022, I was pretty shocked. I knew that the country was deep in the throes of a savings crisis. I just didn’t realize how bad it was.
To give you some context, a $200,000 retirement nest egg might need to last 30 years. If we apply a 4% withdrawal rate, which financial experts have long recommended, that amounts to an annual income of $8,000.
Granted, for most people, that’s on top of Social Security. But it’s still a pretty minimal amount of money.
On the other hand, you may be nearing retirement with $1 million to your name. And if so, you’re clearly ahead of the game.
But $1 million may not actually buy you the retirement of your dreams. So before you get your mind set on a $1 million savings goal, you’ll need to ask yourself a very important question.
What a $1 million nest egg could do for you
Saving $1 million for retirement is more than respectable. And for years, it was a number that was thrown around a lot as a retirement savings goal. But when we dig deeper, it’s pretty easy to see why $1 million may not go so far.
Using the same 4% rule above, a $1 million nest egg gives you $40,000 in annual income. That’s far better than $8,000, and combined with Social Security, it could make for a pretty comfortable retirement.
But there’s a difference between a comfortable retirement and your dream retirement. And if you want the latter, you may need to aim higher.
The average Social Security recipient today collects about $24,000 a year. If you’re in line for a similar benefit, that plus $40,000 a year in savings gives you $64,000 annually.
That’s not nothing. But will it allow you to travel, dine out with friends multiple times a week, and do the other things you imagined doing during your senior years? Maybe, or maybe not. That’s up to you to decide.
What do you want retirement to look like?
If you have modest plans for retirement, then $1 million in savings may end up being more than enough money for you. But before you establish a long-term savings goal, think carefully about what your ideal retirement might entail.
If you want to relocate to a bustling city, your housing costs could increase. If you want to take three international trips a year, you might need extra money to cover them plus your other essential costs.
It’s okay to have lofty goals for retirement. But if you want to bring them to life, you’ll need the money. And $1 million may not cut it.
Of course, another smart thing to do is talk to a financial advisor about your savings needs. They can listen to what you want retirement to look like and help you establish a savings goal that gets you there.
And that goal may be $1 million. But it’s best to come up with a number based on your specific retirement picture.
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