This week, I’m talking about whether or not $1 million is going to be enough for a comfortable retirement.
Today, we’re diving into the key question of the week, which is how far will $1 million stretch in retirement. In other words, how does $1 million saved for retirement translate into income for you.
To make things simple, I’m going to assume you retire sometime in your mid-60s, you have a diversified portfolio with about 60-70% in stocks, and you decide to withdraw 4% from your portfolio.
You may have heard of the 4% rule for retirement withdrawals, which essentially multiplies 4% by your retirement nest egg to give you an easy, back of the envelope withdrawal strategy for retirement. It’s a far from perfect method for calculating your withdrawals, but it’s a good starting point, so to keep things simple, I’ll use that figure.
If you apply the 4% rule to $1 million retirement nest egg - 4% x $1 million = $40,000/year in retirement income.
If on the day you retire, you have $1 million and you apply the 4% rule for your withdrawals and take out $40,000 that first year from your portfolio, you have a reasonably high chance of success in not outliving your money in retirement.
The good news is that you can also apply this 4% rule to whatever your retirement nest egg balance is. Just take 4% X your balance, to figure out a ballpark income figure that will provide for you in retirement, which you can then use as a jumping off point to do some additional planning.
That’s it for today. Tomorrow I’ll be discussing how to combine your portfolio income with your other sources of income in retirement to determine if you’ll have enough for a comfortable retirement.
Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.
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