Do You Need $1 Million to Retire Comfortably?

By Justin Pritchard, CFP®

$1 million seems to be a magic number that people aim for when planning for retirement. It’s a nice round number, but it’s important to know if it’s the right number.

So, do you need $1 million to retire, and what could you expect in terms of income if you have $1 million set aside?

The short answer is no: You do not necessarily need $1 million to retire, and many people near retirement age do not have that much money. But you could need $1 million or more, depending on where you live, how much you spend, and other factors.

While that’s non-committal and unsatisfying, it’s the most honest answer. Since your situation is unique, you’ll need to figure out what the right number is for your needs.

Rules of thumb and estimates can be interesting when you want a ballpark idea. For example, they might help you figure out if retiring comfortably is in the realm of possibility. But it’s best to refine your estimates and do more robust planning as you get more serious about your future.

Continue reading below, or watch this video with similar information:

What Does $1 Million Get You?

How much retirement income do you get from $1 million in savings, and is it enough to retire in comfort?

It depends on several factors, but we can make some estimates using different assumptions. In particular, we might work with:

  • The withdrawal rate you use to draw down your assets
  • The amount of retirement income you receive

Withdrawal Rate

Assuming a 3% withdrawal rate and $1 million in assets, you’d start with $30,000 per year of withdrawals. Note that a 3% rate is fairly conservative, and some people will draw at higher rates.

You’re starting with a relatively low rate so that you can increase the dollar amount you withdraw each year with inflation. For instance, if inflation was 4% for your first year of retirement, you would increase the amount you withdraw to keep up with inflation. In that case, you’d multiply the starting amount of $30,000 by 0.04 (or 4%) to arrive at an inflation adjustment of $1,200. As a result, you’d withdraw $31,200 in the subsequent year.

Retirement Income

Next, you add your retirement income to the amount you withdraw from your savings.

If you get $30,000 per year in Social Security benefits, you’d have a total of $60,000 of income in your first year of retirement. That’s the combination of $30,000 of withdrawals plus $30,000 of Social Security.

Social Security is inflation-adjusted, so that income source should also increase over time. However, some income sources, such as annuities and some pensions, do not rise with inflation.

Your numbers will not match the previous examples perfectly. So, can you retire comfortably with $1 million, or is your number different? You might choose to withdraw at a different rate than we’ve shown here. Or, you might get a different amount of Social Security income—possibly much more or less, depending on your earnings history and your household.

You can get a ballpark idea of where you might stand based on assets and income sources using the calculator below.

For more calculations, including the ability to delay Social Security while you spend assets:

  1. Try this early retirement calculator.
  2. See a variety of other ways to calculate your retirement numbers.

Is $1 Million Enough to Retire?

Whether or not you’ll have enough depends on your lifestyle, geographic location, health issues, and more. You’ll also want to think about the following:

  • How inflation will change your spending level over time
  • What changes you’ll experience, such as reducing spending as you age
  • Spending shocks like healthcare events and other surprises
  • And more (we’ll cover some points below)

You can find data on how much retirees typically spend, but your transaction history is an excellent source of information. Look back through your bank and credit card statements to see where your money goes, and you’re off to a good start.

It’s Complicated

While the example above gives you a nice ballpark idea of how much you can expect in retirement, reality is a bit more complicated. It’s often best to do a robust retirement analysis that looks at the big picture and also drills down into the details.

Here are some of the finer points to consider as you plan for retirement.

  • Taxes: Although you might get enough “income” from Social Security and withdrawals from your accounts, you might not get to spend all of that money. Especially with $1 million saved for retirement, it’s likely that you’ll owe income tax each year. For more details, see this video
  • Planning strategies: To help manage taxes or maximize your income, you might use different strategies that you can’t include in the simplified examples above. For instance, you might use Roth conversions to manage RMDs, or you could use a Social Security bridge strategy (or both) to improve your situation.
  • Early death: If you have multiple people in the household receiving Social Security, what happens if one of you dies early? Some of that income might go away, and the survivor might face the so-called “widow’s penalty” when switching to a single tax-filing status.
  • Uncertain returns: Rules of thumb and calculators often assume you’ll get flat returns—or you’ll at least earn enough on your investments to avoid running out of money. But if the markets don’t cooperate, that’s a risk. For example, big losses during the early years of retirement could derail some plans.
  • Spending in “lumps”: You won’t necessarily spend the same amount each year. Whether you have a healthcare event, a major purchase, or any type of surprise, you might need to take large withdrawals from savings. That can affect your ability to take income in future years and require you to revamp your plan.
  • Longevity: Living longer often means that you put more of a strain on your savings. When you need to fund more years, it’s best to have more money set aside.

There may be other risks (and opportunities to improve things) as well.

For more detailed calculations, try the early retirement calculator.