Can You Retire Comfortably with $2 Million Saved?

According to a recent Charles Schwab survey, U.S. workers believe they'll need around $2 million to retire.

Using the old 4% Rule for some back-of-the-napkin math, those retirees are expecting to withdraw about $80,000 their first year in retirement, with future withdrawals going up or down from there based on how much annual savings and investment returns replenish their assets. We also know in most cases there will be other income sources like social security or pension income.

So, is $80,000 per year from your investment portfolio, give or take, enough to live on in retirement?

That's a much more complicated question to answer than some folks realize. So many factors that affect retirement planning are in a state of constant flux – most of all, your life. A financial plan that's built around static numbers might not be able to adjust how and when you need it to.

Let's talk about some of the variables that factor into Keen Wealth's comprehensive planning process and try to arrive at a more thorough analysis of a $2 million nest egg goal.

1. Inflation

No matter how much you're planning to spend every year in retirement, your dollar isn't going to buy as much tomorrow as it does today—unless we have deflation, which rarely happens.

In a typical year, the Federal Reserve uses interest rate adjustments and other fiscal tools to try to keep inflation around 2%. And, as we've all experienced these last couple of years, when unpredictable global events like a pandemic or wars disrupt the supply chain, affect consumer demand, and spook the markets, inflation can spike above that 2% target.

Spending an extra 2% every year might not sound like much. But even below-average inflation rates are going to compound year after year for ...

2. Life Expectancy

... hopefully, a very long time!

Although life expectancy in the U.S. dropped slightly during the pandemic, long-term trends suggest that you are likely to have a much longer retirement than your parents or grandparents. In fact, in the industrialized world, the number of centenarians has doubled every decade since the 1960s! We're also on the cusp of several major technological advancements in health care, including the use of "gene editing" to treat diseases and generative AI to organize and analyze medical data more efficiently. As we also continue to learn more about good diet and exercise habits, seniors might be able to match a longer health span to longer lifespans, staying active well into their 80s and beyond.

But whether you're still vacationing and playing golf further into your golden years or settling into a retirement community, living longer means paying for things longer. Many seniors will also need long-term healthcare services later in their lives that might not be covered by Medicare.

3. Market Returns

Since 1957, the S&P 500's annualized average return is just over 10%. But within that larger upward trend are a series of peaks and valleys caused by normal market volatility.

Calculations like The 4% Rule –  or Dave Ramsey's highly controversial 8% Rule – tend to take a static return rate for granted, which glosses over how your investments, withdrawal rate, and spending power could fluctuate during those normal ups and downs. Some folks might spend less during volatile periods to try to preserve their nest eggs. Others might want to take advantage of downturns and look for rebalancing and diversification opportunities.

4. Lifestyle Expectations 

Where and how you want to live in retirement could affect the purchasing power of a $2 million nest egg even more than inflation or market volatility. Taxes, real estate and rental prices, and the cost of entertainment and groceries can vary from state to state. You might be able to live the good life off $2 million in your current hometown but struggle to stick to a budget in your dream retirement destination.

For many folks, a comfortable retirement also means retiring early, perhaps before the "traditional" age of 65, so that you can get more out of your money while you're younger. But retiring early could also mean spending down your nest egg faster, especially if you have to pay for health insurance out of pocket as you bridge the gap to Medicare eligibility.

Unless, perhaps, you're planning to work part-time and earn some extra income that will offset the costs of health care or other expenses.

And what about Social Security? Are you going to need those benefit checks earlier in retirement to fund the lifestyle you want? Then you're also limiting the potential size of those benefits versus delaying them until you reach full retirement age or working longer to pump up your lifetime earnings history.

The $2 Million Retirement Question

When we answer listener questions on the Keen on Retirement podcast, we often start by saying, “It depends.”

Retirement “rules” and online planning calculators can give you a very general idea of what safe spending in retirement might look like. But life is so much bigger and more complex than even a big number like $2 million.

That’s why you don’t need a number to secure a safe and fulfilling retirement, but you may benefit from a comprehensive financial plan that keeps your numbers and your life moving in the same direction. Get in touch with Keen Wealth and let’s start planning your path from 2024 to retirement.  

About Bill

Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019 and the second edition under Financial Risk Management on October 26, 2022. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities. 

The Steve Sanduski Advisor Network, Belay Advisor, LLC and other third-party contributors to our blogs and podcasts are not affiliated with Keen Wealth Advisors.

For additional details on Keen Wealth Advisors, please visit https://www.keenwealthadvisors.com/important-disclosures.

20240110-3316989-10528784