Retiring on $2 million doesn't sound half bad, right? It's $1 million more than what most financial experts have traditionally recommended and roughly 684% more than what most Americans have saved by the time they reach retirement age, which is about $255,200, according to the Federal Reserve. But will $2 million really last you the full length of your retirement or should you be saving more? Let's take a look.
It depends on your annual expenses
The best way to determine how long $2 million will last is to estimate how much you'll spend each year in retirement. Easier said than done, but to get a rough idea you can use the 80% rule, which states you'll need about 80% of your pre-retirement annual expenses for each year of retirement.
By way of example, let's look at how much the average American household spent in 2021, which was about $67,000, according to research from The Ascent. If we take this number as your pre-retirement expenses, then 80% would be $53,600. Assuming that's how much you'd spend in retirement, you could live for about 37 years on $53,600 per year with a nest egg of $2 million (assuming that $2 million is earning 0% and not factoring in Social Security). If that holds true for you, you could retire at 63, and live on $53,600 each year until you turned 100.
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Not bad, right?
Of course, that doesn't factor in inflation. In fact, if you were to retire even 15 years from 2021, $53,600 would be about $79,544 in 2036 dollars, assuming a 2.5% inflation rate from now until then. Using that as your annual expenses, you could retire for about 25 years on $2 million. Still not bad, but retiring at 63 would mean you would outlive your retirement savings if you lived past age 88.
Another potential limitation with using the 2021 average household expenses is that it includes $1,885 for housing and $913 for transportation. Some retirees, however, will have paid off their homes and cars and will no longer need to commute for work, drastically reducing how much they spend on both. Conversely, the estimate may not be enough for food ($691) or healthcare ($454), so the expenses you scrap could be balanced by new expenses.
So is $2 million enough to retire?
The golden number here might be $57,000. If you were to retire at 65 and live for at most 35 years, you would need to keep your annual expenses at or below $57,000 to live on a $2 million nest egg, assuming you don't live past 100.
This would put you in a great position to retire comfortably. In fact, according to research by the Motley Fool, the average retiree today spends about $48,872 per year in retirement. At $57,000, you would have more than enough, with about $8,000 as a cushion.
As noted above, inflation could make this tricky, as the longer you live, the less spending power your money has. Fortunately, you can use certain income-producing assets, like annuities and CDs, that have low risks and can help you at least keep pace with inflation and hold on to your purchasing power for longer. You'll also likely be eligible for Social Security.
As far as saving $2 million for retirement, it's a challenge. You'll likely need to open a brokerage account and invest a portion of your annual income in stocks, bonds, and various types of funds, like ETFs and mutual funds. It's also a good idea to take advantage of employer-sponsored retirement plans, like 401(k)s, especially if your employer will match some of your contributions.
The earlier you start investing, the more time you give your money to grow. You might not be able to sock away $2 million from your salary alone, but with the power of compound interest, you could amass a significant amount to retire comfortably.
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FAQs
As the phrase goes, “That depends!” If your portfolio averages a 4% return every year and your expenses stay static, $2 million should last a lifetime, no matter how many years that is.
How long will $2 million last in retirement? ›
You retire at 40 – With an estimated life expectancy of 90, you need 50 years of income. Across those years, $2 million could equate to approximately $40,000 annually or $3,333 monthly. This should be enough to cover you, but things may be tight if your outgoings are high as a retiree.
How long does $1 million last after retirement? ›
Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.
What percentage of people retire with $2000000? ›
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
How long will $5 million last in retirement? ›
Assuming a life expectancy of 90 and thus a retirement term of 29 years, $5 million would break into $172,414 annually or $14,368 monthly. That possible annual and monthly distribution amount reduces as you apply different retirement ages but will likely still cover your needs if you exit the working world early.
What percentage of retirees have $3 million dollars? ›
Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.
How much monthly income will $2 million generate? ›
For example, you can calculate an $80,000 return for your $2 million retirement fund. As a result, your income at 55 will be $6,666 per month. Then, you'll increase this amount by 3% this year to combat inflation. Plus, you'll start collecting Social Security at 65 and estimate a $2,500 monthly benefit.
How much money do most people retire with? ›
Average retirement savings balance by age
| Age group | Average retirement savings balance amount |
|---|
| 45-54 | $313,220. |
| 55-64 | $537,560. |
| 65-74 | $609,230. |
| 75 and older | $462,4100. |
2 more rowsMay 7, 2024
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
Can you live off interest of $1 million dollars? ›
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
Being rich currently means having a net worth of about $2.2 million. However, this number fluctuates over time, and you can measure wealth according to your financial priorities. As a result, healthy financial habits, like spending less than you make, are critical to becoming wealthy, no matter your definition.
What is considered wealthy in retirement? ›
To be considered wealthy at age 65 or older, you need a household net worth of $3.2 million, according to finance expert Geoffrey Schmidt, CPA, who used data from the 2019 Survey of Consumer Finances (SCF) to determine the household net worth needed at age 65 or older to determine the various percentiles of wealth in ...
Can I live off the interest of 2 million dollars? ›
Can you live off of $2 million in assets? The answer is yes, if you manage your investment portfolio smartly. One common option is to invest $2 million in an index fund. But you will still need to make absolutely sure that you have a rainy day fund since the market can be reliable over decades but fickle over years.
What is the 4 rule for retirement? ›
The 4% rule aims to minimize the risk of failure (running out of money) by being very conservative with spending early in retirement. However, this comes at the cost of potentially underutilizing one's savings and not being able to spend more if investment returns are favorable.
How much money do you need to retire comfortably at age 65? ›
Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age. Consider when you want to retire, goals, annual salary, expected annual raises, inflation, investment portfolio performance and potential healthcare expenses.
Can I retire on $500,000 plus Social Security? ›
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
Can a couple retire at 60 with $2 million? ›
As a general rule, most retirees and pre-retirees underestimate what their expenses will be. A $2 million nest egg is substantial and can provide financial security for many couples, but whether it's enough for you depends on various factors. First, consider when you plan to retire.
How to retire with $2 million if you make $100000 per year? ›
If you want to retire with $2 million, you'll need to invest about 12% of a salary of $100,000 starting in your 20s. Waiting until you're older will require a larger portion of your pay. If you wait until your 30s, then that number is closer to 17% of your salary.
How much money do you need to retire with $100,000 a year income? ›
So, if you're aiming for $100,000 a year in retirement and also receiving Social Security checks, you'd need to have this amount in your portfolio: age 62: $2.1 million. age 67: $1.9 million. age 70: $1.8 million.
How much money do you need to retire with $80,000 a year income? ›
Sticking with the $80,000 example, that means you need an additional $50,000 in income a year. Assuming an inflation rate of 4% and a conservative after-tax rate of return of 5%, you should aim for a savings target of $1.3 million to fund a 30-year retirement that begins at age 67.
