Many Americans dream about retiring at 65 with $1 million.
Or at least that used to be the dream. With inflation, arguably, $1 million isn’t what it used to be, although it’s still an impressive amount to put away.
So if you retire at 65 with $1 million, what might your lifestyle look like? Retirement experts weighed in with their insights.
[READ: Can You Retire on $1 Million? Here’s How Far It Will Go.]
Your Living Expenses Matter When Retiring at 65 on $1 Million
Your lifestyle as a retiree with $1 million saved depends on whether you’re budget-conscious or a free spender.
“The most important variable to factor into your retirement lifestyle is what are your estimated living expenses,” says Patrick Marcinko, an associate financial advisor at Bogart Wealth, a wealth investment firm with offices in Virginia and Texas.
The good news is this: “If you have rather low living expenses, having $1 million saved for retirement may be more than enough for a comfortable lifestyle,” Marcinko says.
The bad news? “If you tend to have pretty high living expenses, a $1 million retirement nest egg might not be enough to last your lifetime, and you might need to reexamine what your retirement might look like,” Marcinko says.
This means that figuring out your living expenses and costs to expect before you retire is extremely important.
“A typical distribution rate someone should take from their investments on an annual basis is 4% to 5%,” says Ronnie Thompson, owner of True North Advisors, an investment advisory firm in Northville, Michigan.
“A retirement investment invested at a moderate risk — 50% stock and 50% bond — should earn an average of 4% to 6% per year,” Thompson says. “At that average rate, taking 4% to 5% from that investment to supplement your income would dramatically reduce the erosion of that asset, protecting you from outliving your money.”
He says if you withdrew 5% a year, you’d live off of $50,000 a year, or $4,167 a month, not including Social Security.
“The average couple I see heading into retirement needs $5,000 to 6,000 per month to afford a reasonable retirement lifestyle,” Thompson says.
If you wanted to have $100,000 a year, plus Social Security, Thomas says, you’d want to save $2 million.
If You Want to Retire at 65 on $1 Million, Your Location Matters
A good, stable lifestyle with $1 million saved for retirement at 65 may be more achievable in a city with a low cost of living, says Matt Mondoux, a senior financial advisor at Blue Chip Partners, a financial planning firm in Farmington Hills, Michigan.
“One million will not go nearly as far in a higher cost of living city such as New York City when compared to a lower cost of living city like Wichita (Kansas),” Mondoux says. “The lifestyle one can live really depends to a great degree on where they are living.”
But if you choose your home base wisely, $1 million may take you further.
Your Debts Impact How You’ll Retire at 65 on $1 Million
When it comes to your $1 million retirement lifestyle, the amount of debt you carry matters.
“A 65-year-old retiree with $1 million saved will likely have a more successful retirement if they have minimal debt,” Marcinko says. “Your debt load could weigh heavily on what a healthy retirement looks like. If you fully own your home and have no mortgage, that is a massive expense to not have in retirement.”
Mondoux agrees, adding that if you still have a mortgage to pay off, that will “impact how far $1 million will take a retiree. One million in savings can be great — if the retiree has right-sized their expenses relative to what they can bring in from savings and their Social Security.”
[Read: Best Mortgage Refinance Lenders.]
How Many People You Support Matters When Retiring With $1 Million
Supporting adult children, aging parents or other family members can impact what a $1 million retirement lifestyle looks like.
“Retirement lifestyle is greatly affected by how many people are the savings supposed to support,” Marcinko says. “Having $1 million in retirement savings would likely provide more for someone who is single, compared to a married couple or a household with multiple dependents.”
The further you are from retirement, the less you’re likely to think about dependents during your retirement years. But that factor will greatly affect the lifestyle your $1 million will support.
How You Manage and Invest the $1 Million Matters
The asset allocation of your $1 million can impact the way you live in retirement at 65.
For example, if it’s sitting in a savings account, without earning much in terms of interest, inflation could erode its value quickly. “Assuming the $1 million is in the bank, the negative would be a long-term lack of interest,” Thompson says.
Thompson says that while interest rates are currently pretty reasonable on savings accounts, you can’t necessarily count on that.
“For the last several decades, interest rates have been low and therefore bearing interest on bank accounts has been very low,” Thompson says.
Thompson adds: “Long term, it’s extremely difficult to depend on large amounts of cash in the bank to support income and lifestyle in retirement, especially if it does not bear enough interest.”
Managing the money to generate interest is key, says Peter Casciotta, owner of Asset Management & Advisory Services of Lee County in Cape Coral, Florida.
“As far as $1 million goes, if managed properly, receiving a $50,000 or 5% annual distribution is not out of the question,” Casciotta says. If the $1 million is earning income through interest or investments, Casciotta says it can “enhance your lifestyle without a doubt. The supplemental income may afford golfing with the neighbors, trips to see the children or grandchildren, and an occasional cruise here and there.”
Unexpected Expenses May Erode Your $1 Million
Surprise retirement expenses could include paying for medical care in a nursing home, assisted living facility or in your home.
“With inflation on the rise, just maintaining your lifestyle can be difficult and frustrating,” Casciotta says. “Unexpected health or medical issues can put a damper on things as well. It’s almost like having a hole in the umbrella when trying to stay dry. The high costs associated with medical or health services can be detrimental to your lifestyle in retirement.”
Your chances of a successful $1 million retirement improve if you can manage to adhere to something close to the 4% rule. But you still may want to keep saving or put off retirement for a few more years until you’re closer to 70, and your Social Security check will be the highest.
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What Will My Lifestyle Be if I Retire at 65 With $1 Million? originally appeared on usnews.com
