What $2 Million in Retirement Savings Looks Like in Monthly Spending
Written by
Jacob Wade
Edited by
Jenna Klaverweiden
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If you’ve been diligent with your savings and managed to amass a retirement fund of $2 million, you’ll likely be in pretty good shape for retirement. But while $2 million might feel like a lot, there are still limits on what you can spend in retirement without running out of money.
Here’s what $2 million in retirement savings could look like on a monthly basis in retirement.
Monthly Spending for a $2 Million Fund
There are several retirement withdrawal strategies you could use. While some brokers like Fidelity recommend saving around 10 times your annual salary by retirement to live on, others recommend trying to replace 80% of your income.
Most financial advisors try to help you preserve your money throughout retirement using a “safe withdrawal method” to calculate how much you can withdraw without running out of money. Probably the most popular strategy is the 4% rule, which allows you to withdraw 4% of your investment portfolio each year, adjusting for inflation. With $2 million in retirement savings, the 4% rule gives you about $80,000 a year to safely withdraw from your investments (not factoring in inflation).
That translates into about $6,667 per month to spend, although taxes might reduce that amount, depending on how you withdraw your funds. For many retirees, this would provide a comfortable retirement income — especially if their homes are paid off and they have no outstanding consumer debt.
But if you have built a lifestyle that requires more than $6,667 per month, you might need other income sources to help fund your retirement. And chances are — if you were able to accumulate $2 million in investments — you probably had a decent income and have earned the ability to collect Social Security income as well.
If you combine Social Security income along with your investment income, this could push you over $8,000 per month, which should be more than sufficient for most middle-class retirees.
What a Monthly Budget Might Look Like
If you use the 4% rule and withdraw around $6,500 per month and combine it with an average Social Security income of around $2,000 per month, you’ll have around $8,500 pretax to work with. And if your effective tax rate ends up being around 15%, you’ll be able to budget based on $7,225 take-home pay.
Using the 75/15/10 budget rule, that means 75%, or around $5,400, could go toward your needs. If you don’t have a mortgage or any consumer debt in retirement, this is plenty of money to cover things like property taxes and insurance, groceries, transportation costs, and other needs. It also should leave some room for fun things, like restaurants, entertainment and travel.
Using the 75/15/10 rule, you would be allocating 15% of your income toward investments. Since you’re not living off your investments, you can combine this 15% with the 10% savings, and simply set aside 25% of your retirement income toward short-term savings goals. This could include travel, Christmas gifts, car maintenance and any other large purchases you have planned for retirement.
Living on 75% of your retirement income gives you more flexibility in retirement, and setting aside a quarter of your income for upcoming expenses and more fun can make retirement a lot more enjoyable. If you don’t need to save that much, you can always allocate more toward needs and wants, and just set aside a smaller amount for savings.
How Far Does $2 Million Go?
That amount of money can go quite a long way in retirement. If you plan on eliminating some of your larger fixed expenses, such as your mortgage and car payments, your money will stretch even further.
If you have larger planned expenses in retirement that increase your monthly budget, you may need to rely on additional income sources, such as Social Security, pensions or business income.
It’s always a good idea to meet with a licensed financial planner when considering retirement — no matter your income level. Putting together a tax-efficient plan for withdrawing from your retirement accounts that takes into consideration how much is invested in each account, how much Social Security you expect and your retirement spending can help you enjoy retirement without worrying about running out of money.
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