Why $1 Million Isn’t Enough for Retirement Anymore

Serious worried senior couple calculating bills to pay or checking domestic finances stressed of debt, retired elderly old family reading documents concerned about loan bankruptcy money problems.
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How much do you think experts would recommend saving for retirement? Our recent survey revealed that roughly 60% of respondents believed experts would recommend saving no more than $1 million — with 20% answering less than $500,000.

However, the remaining 40% who believed experts would recommend saving more than $1 million are probably right. Here’s why.

Reasons Why a $1 Million Nest Egg May Not Be Enough

Julian B. Morris, CFP at Concierge Wealth Management, says,$1 million likely isn’t enough for retirement anymore because the cost of living has continued to rise from previous generations.” Plus, “human beings are living longer, so $1 million needs to last for a longer period to cover healthcare expenses.” And lastly, “Social Security is expected to be depleted in the early 2030s, which means if you’re planning to retire after that, you may not receive the full benefit you’re promised or any benefit at all.”

All this being said, Morris emphasizes that it’s still possible to retire with $1 million as long as you maintain a strict budget and live below your means. However, if you want to enjoy your golden years without worrying about running out of retirement funds, you may need to stash away more than $1 million.

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How Much Should You Save for Retirement?

Now that $1 million may not be enough for retirement with inflation, healthcare costs and life expectancy increasing, you’ll most likely need a larger nest egg to retire comfortably. So, how much should you save instead? Unfortunately, there’s no one-size fits all answer.

Are You Retirement Ready?

According to Fidelity Investment, you should aim to save 10x your pre-retirement salary by 67. So if you make $150,000 a year, you’ll need a $1.5 million nest egg. However, many other factors, such as your cost of living, tax bracket and retirement age, can also affect the amount you need. Let’s examine these factors further.

1. Lifestyle in Retirement

To determine how much you need to save for retirement, you must first know what your lifestyle and expenses would look like during your retirement years. Do you plan on traveling the world with your spouse and staying at luxury resorts? Or do you plan on moving to the countryside and living a frugal yet peaceful lifestyle? 

The ideal size of your nest egg can also vary significantly depending on which part of the country you plan to settle down. For example, a $1.5 million retirement fund may not stretch as far in major cities like New York and Los Angeles compared to smaller towns in North Carolina or Ohio.

2. Taxes

Let’s say you’ve built a $2 million nest egg in your 401(k) — which is made with pre-tax dollars. If your tax bracket in retirement is 40% between federal and state, then your $2 million is worth closer to $1.2 million after taxes. On the other hand, since Roth IRA contributions are made with after-tax dollars, you can make withdrawals tax-free during your golden years, which means you get to keep the entire $2 million in your savings.

Are You Retirement Ready?

Remember, even if you don’t use retirement savings accounts and instead invest in the stock market, your brokerage account will be subject to capital gains taxes — which is either 0%, 15%, or 20% on most assets held for longer than a year. 

So, whether you invest in the stock market or save in a retirement savings account, consider the tax implications to help you better plan for retirement.

3. Your Desired Retirement Age

When it comes to retirement planning, your desired retirement age can significantly impact how much you need to save. The sooner you retire, the more money you’ll need to save to support yourself through your retirement years.

Let’s say you want to retire early at 40. That means your nest egg will need to cover around 40 to 50 years’ worth of expenses, depending on your life expectancy. If you want to maintain a decent standard of living during your retirement years, your nest egg may need to be at least $2 to $3 million. 

On the other hand, if you plan to retire at 65 (the most common retirement age), you’ll have approximately 20 to 25 years in retirement, which means you could contribute less money to reach your retirement savings goal. 

Are You Retirement Ready?

Tips for Building a Nest Egg

Here are some actionable tips to help you build a solid nest egg so you can enjoy your retirement years without stressing about money.

  • Automate Your Savings. Rather than relying on memory or willpower, automating your savings allows you to consistently put money away without even thinking about it. So, if you haven’t already, set up automatic transfers from your checking account to a retirement savings account. 
  • Set a SMART Financial Goal. SMART stands for specific, measurable, achievable, relevant and time-bound. Instead of vaguely saying, “I want to save for retirement,” setting a SMART goal forces you to set achievable targets with specific deadlines. Here’s what a SMART goal could look like: To retire by 65 and reach my savings goal of $1.4 million, I will set aside $11,000 a year, which translates to around $920 a month. I will make sure I achieve this goal by automating my savings and using a budgeting app to help me stay on track.
  • Pay Off High-Interest Debt. Credit card debt, personal loans and other types of high-interest debt can eat away at your savings over time. By making extra payments and focusing on paying down your debt, you’ll free up money to invest in your future. Consider taking out a debt consolidation loan if you’re struggling to keep up with your payments. 

Start Saving for Your Future Today

Use our retirement calculator to figure out exactly how much you’ll need in retirement and how much you should save each month to build up your nest egg. If you’re feeling overwhelmed or unsure about where to start, consider speaking with a certified financial planner (CFP) who can guide you in the right direction.

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About the Author

Jamela Adam is a personal finance writer covering topics such as savings, investing, mortgages, student loans, and more. Her work has appeared on Forbes Advisor, Chime, RateGenius, and Mint Intuit, among other publications.
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