Is $1 million enough for retirement? Experts say it’s not

Of course, how much you actually need depends on myriad factors: where you live, your fixed expenses, the type of lifestyle you want to lead, your age, medical expenses, whether you support someone else, how much your spouse has saved, your social security contributions and so on. Then there’s inflation, investment returns, and other uncertainties to consider. There is no one size fits all savings to strive for.

However, $1 million used to be the benchmark for financial security in retirement, says Michele Lee Fine, founder and CEO of Cornerstone Wealth Advisory. But the rising cost of living means that may no longer be enough, especially in expensive cities like New York, where Fine is based.

“While this is still an exceptional level of benefit, it is questionable whether this amount is sustainable as a lifetime source of income given improved longevity and high inflation,” says Fine.

Alvin Carlos, a certified financial planner (CFP) and managing partner at District Capital Management, recommends retirees aim closer to $2 million, double the traditional guideline. A 2021 Schwab retirement survey showed many people feel the same way, with the average worker reporting they need $1.9 million to retire. And that’s true for people who are now close to retirement – the number could be even higher for young people with decades left in the workforce.

“Even if you can live on $3,000 a month to cover living expenses and travel, you still have money to spend on home repairs, property taxes, health care expenses, and possibly long-term care expenses,” says Carlos.

That’s alarming considering the average full-time American worker with a 401(k) pocketed $35,354 last year, according to Vanguard (the average skewed by high earners is slightly better: about $141,542).

The current economic climate is setting the new norm for retirement: inflation and a volatile stock market are compounding America’s retirement crisis as young workers and retirees alike grapple with the higher costs of living, from housing to groceries to medical care. This is leading to an increasingly negative attitude among many Americans that they can pay their current bills — let alone that they can afford to someday comfortably retire.

Of course, you can save less than $1 million and still retire — that’s true for many current retirees. But financial experts say workers need to save more than ever to feel comfortable and secure in retirement.

“A million dollars isn’t what it used to be, but it can still provide a comfortable retirement if done right,” said Gates Little, president and CEO of Southern Bank Company. That is, “If you’ve made $100,000 a year for most of your working life, you’re probably used to a much more comfortable lifestyle than a $1 million retirement can offer.”

Here’s how to prepare for retirement

Generally, advisors suggest saving 10% to 15% of your income for retirement, starting in your 20s. But there are big differences, and many people can’t afford to save 10% of their income every month. Many Millennials and Gen Zers say they see no point in saving for retirement given the ever-rising cost of living and other existential threats.

But even saving a little for the future is better than nothing; It is highly unlikely that the average person will ever wish they had saved fewer Money. If saving feels difficult, aim for a smaller dollar amount or percentage each month, says Carlos — even $20, or 1% of your income, is a solid place to start. Don’t be put off by the over $1 million figure.

“If you’re not contributing to your 401(k), contribute 3% or 5%,” he says. “You can also set your contributions to automatically increase by 1% or 2% each year, so you don’t have to worry about that.”

Another rule of thumb says Benjamin Westerman, CFP and CPA and executive vice president of wealth management at OneDigital: Aim to save 20x your annual spend over the course of your career. This might be easier to mentally account for than 10-15% of your income each year when you’re struggling to pay bills.

“By achieving that goal, combined with Social Security benefits, you’ll enjoy the same standard of living in retirement that you enjoyed during your working years,” says Westerman. “If you’re not sure how much you spend annually, don’t worry. You can safely work backwards and take advantage of a 4% to 5% withdrawal rate on your investments.”

So if you have $1 million in savings, you can withdraw $40,000 to $50,000 a year in retirement. That will be more than enough for some people, depending on where they live and what their expenses are.

All that said, meeting with an advisor and creating a customized financial plan that takes into account your (or your family’s) specific goals, income, debt, net worth, etc. is crucial for anyone looking to have a good retirement meaning, says Drew Parker. Creator of The Complete Retirement Planner.

“Trying to offer everyone a certain amount to save for retirement sets them up for failure,” says Parker. “When it comes to finance, no one should have to rely on guesswork, assumptions, generic benchmarks, or advice that presents broad generalizations as specific goals.”

And remember, even if you can’t save much now, you won’t always be able to.

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