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
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 will 2 million dollars last in retirement? ›
A retirement account with $2 million should be enough to make most people comfortable. With an average income, you can expect it to last 35 years or more. However, everyone's retirement expectations and needs are different.
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 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 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 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.
Is 2 million in assets rich? ›
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 ...
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 and median 401(k) balances by age
| Age range | Average balance | Median balance |
|---|
| 35-44 | $76,354 | $28,318 |
| 45-54 | $142,069 | $48,301 |
| 55-64 | $207,874 | $71,168 |
| 65+ | $232,710 | $70,620 |
2 more rowsMar 13, 2024
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- Denver, Colorado. Insider Monkey Score: 4. ...
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- Cape Coral, Florida. ...
- Beaufort, South Carolina. ...
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- Williamsburg, Virginia. ...
- Charleston, South Carolina.
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.
What age can you retire with $2 million? ›
You retire at 55 – With an estimated life expectancy of 90, you need 35 years of income. Across those years, $2 million could equate to approximately $57,143 annually or $4,762 monthly.
How much does Social Security pay? ›
Average Social Security payments
Social Security payments vary widely from person to person, but the average monthly payout as of September 2023 is just under $1,707, while the maximum payment—for someone whose annual career earnings average $160,200 or more and retires at full retirement age—is $3,627.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
How much does a $2 million dollar annuity pay per month? ›
The amount a $2 million annuity pays depends on factors such as whether you want your monthly lifetime income payments to start immediately or, say, 10 years from now. Currently, a $2 million annuity will likely pay between $10,000 to $20,000 a month for the rest of your life.
What does a 2 million dollar retirement look like in America? ›
Meanwhile, a $2 million retirement account will provide you 25 years of $80,000 in annual income -- based on the 4% retirement rule. In general, the rule says that you should only withdraw up to 4% of your retirement savings each year, and adjust for inflation annually, to make your savings last for about 30 years.
What is the new rule of thumb for $3 million retirement? ›
He added that, according to this rule, the amount you withdraw should be considered safe enough to sustain your retirement for 30 years. “For example, if you retire with $3 million saved, you would start withdrawing $120,000 in the first year and adjust this amount for inflation thereafter,” he said.
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.
