Most people believe that $1 million is a tremendous amount of money and certainly enough to retire with. However, this might not necessarily be the case. If you are wondering if you could retire with $1 million, be sure to read on!
The Importance of Taxes and Inflation
Americans who want to know if they can retire on $1 million, need to look at their tax situation; this because taxes could influence your ability to live of $1 million during your retirement. Additionally inflation could limit the amount of money you truly have. To understand how this works exactly, please read on.
The Roth Account
Those who have their $1 million in a ROTH account, whether it be a 401(k) or 403(b) are looking good, because there are no taxes accompanied on distributions with these options. Therefore, the $1 million you have saved stays $1 million across the board. However, those with with a million dollars in a tax-deferred account, like a traditional IRA rollover or a traditional 401(k) you will have to pay taxes and now your account may only be worth $850,000, $750,000 or less.
When you intend on retiring with $1 million, your retirement length will also impact if your money is going to last. While it may be a little morbid to look into this, it is a good idea to look at the average life-expectancy in your family, which gives you an estimate of how long your retirement money has to last.
Needless to say, if your family has a history of family members living to over a hundred, the $1 million you’ve saved might not last. Therefore, you might have to wait a little longer until you retire and save a little more.
Evaluating Your Living Expenses
Another thing retirees should look at is living expense, because this could affect how long you can live of your $1 million retirement. How much money do you spend on average? How much income are you used to spending. Do you have plans for unforeseen major expenses? Have you paid off your home? How do you intend to spend your retirement funds? All these questions should be answered before you retire.
Supplementing Your Retirement
Since people live longer than decades ago, it could be wise to supplement your income. This does not necessarily mean that you have to work longer or harder though, because you can count on supplemental income such as social security income streams, pension benefit and more.
For an average retiree, $20,000 a year is not going to go far. Therefore, an additional social security benefit starting from $30,000 could be quite beneficial and lift your retirement fund to $50,000 a year.
If you look at it objectively, it becomes clear that $1 million flat is probably not enough to retire, because there are simply too many variables to take into consideration. Fortunately, other income streams such as social security and additional benefits could increase the overall annual amount you have to live on.
Of course, this does not apply to everyone, because everyone’s situation is different. If you have serious doubts about your retirement – or if you are starting to save for your retirement now – then you could get some help from a professional financial advisor. A financial advisor will provide you with rational and honest insights, so you can make your retirement plan work for you.
In conclusion, a retirement plan needs to be tailored to the individual. You may have $1 million in retirement funds, but it is unlikely this money is going to last you over the years. So, be sure to get some professional advice to get the best retirement possible.