Can you retire on $1 million?

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Hundred dollar bills
It sounds like enough, but many people underestimate their expenses. Use our calculator — and these tips — to help prepare yourself.
From the Merrill Edge Minute e-newsletter.

Key points

  • Your retirement is more than just a number; it reflects your goals and aspirations and your plans for pursuing them
  • A Merrill Edge™ calculator lets you compare your expected retirement income (based on your savings so far) with the amount you may need
  • If you have a gap in your retirement savings, there are many ways to adjust your plans today to help close it
  • Use the Merrill Edge Retirement Evaluator™ to see if you're on track to meet your retirement goals
Two out of five investors believe their retirement savings goals will be difficult or nearly impossible to reach, according to the Fall 2016 Merrill Edge Report. Part of that pessimism may stem from not being sure what it takes to fund a comfortable retirement.
If only you had a million dollars, right? But it's not always that simple. "What you'll need in retirement is a highly personal question. Some people can live like royalty on $1 million, but for others, it might not be enough," says Debra Greenberg, director, IRA Product Management, Bank of America Merrill Lynch. The reality is that even a big number like that could fall short during a retirement that may last 30 years — especially when you factor in inflation.
Even modest inflation can shrink the value of your retirement savings
Source: 2% is the target inflation rate of the Federal Reserve. Calculations made using the inflation calculator, as of June 2017.
Still, planning your retirement goes beyond aiming for a particular dollar amount; it's also about your individual goals and aspirations, both now and after you retire. Everyone's financial life is different, and your plans for retirement are only one part of the equation.
Understanding how much annual retirement income you can expect from your investments is key. Because while a retirement account that looks large on your monthly statement might seem impressive, the income it generates may not last through decades of retirement. For example, consider the chart below, which shows how much annual retirement income three different "nest eggs" might provide.
How much monthly income $1 million dollars might provide in retirement
Source: Bank of America Merrill Lynch. Illustration is for hypothetical purposes only.Footnote 1

Calculate what you'll need in retirement

Estimating your retirement income needs is not an exact science or a once-and-done process. Your needs — as well as your vision for retirement — will evolve, and your portfolio performance will affect how much money you have to work with.
To get a good idea of how your projected retirement income stacks up against what you may need, start with the Merrill Edge Retirement Evaluator™.
The Retirement Evaluator automatically includes your Merrill Edge accounts and balances. Plus, you can input amounts for accounts not at Merrill Edge for use in your total calculation. The Retirement Evaluator also asks for some personal information, including:
  • Planned retirement age
  • If and when you will draw Social Security
  • Retirement lifestyle
  • Current retirement savings nest egg amount
  • Investment style and comfort with risk
Once you've entered your personal data, the Retirement Evaluator will show:
  • What your nest egg may potentially provide in monthly and annual retirement income
  • Your projected expenses in retirement
  • Whether you may fall short of your income needs
The first time you use the calculator, the results may show a sizable gap between the income amount you are projected to have and what you may need. That's extremely common. Fortunately, there are ways to course-correct. For example, you may be able to use other income sources (such as pensions or part-time work) or increase your retirement savings contributions before you retire.

How the Retirement Evaluator works

Peter, age 45, wants to know if he'll have enough to retire when he turns 65. To check, he uses the Retirement Evaluator. Peter enters some of his personal information, such as:
  • Retirement savings and investments: $200,000
  • Annual salary: $100,000
  • Investment style: moderately aggressive
  • Retirement contributions: $500 per month
  • Planned retirement age: 65
Step 1. According to the Retirement Evaluator, Peter is projected to accumulate a nest egg that could generate $1,883 per month in income by the time he's 65. However, he'll need $4,994 per month.
Step 2. To help close the gap, Peter adjusts some variables in the calculator. He adds Social Security benefits and cuts back on his retirement lifestyle (choosing 75%, rather than 85%, for the percentage of pre-retirement income he'll need). When he recalculates, he finds a gap of $1,152 per month.
Step 3. Peter increases his retirement age to 68 and bumps up his monthly retirement plan contributions to $700. Now he finds he's on target to potentially reach his goal.

Look for opportunities to help close the gap

If you need to do a better job of aligning your needs to your financial resources, there are several steps you might take. Many of these variables are included in the Retirement Evaluator, and you can adjust the input information and rework the calculations to see what strategies might get you where you need to be.
No matter what your current retirement savings and life stage, there are things you can do to be better prepared for retirement.
— Debra Greenberg
director, IRA Product Management
Bank of America Merrill Lynch
Account for all of your retirement assets:
  • Review brokerage funds outside your IRAs and 401(k)s
  • If you will receive a retirement pension from an employer, check your files to see how much you expect to receive in monthly income
  • If you plan to work part-time, as an increasing number of retirees do, that anticipated income can also help you close the gap
Consider investment changes:
  • Save and invest more now, perhaps by tracking your current expenses. Doing this can help you identify current spending that could be diverted to retirement saving and investing.
  • Think about your investment style and comfort with risk. If you are comfortable with a more aggressive approach, adjust your investment style in the calculator. That could potentially grow your retirement savings to help close the gap.
Re-evaluate your retirement plans:
  • Defer taking Social Security during your first few years of eligibility. Each year you delay, your monthly benefits grow by about 8%, until age 70, at which point you qualify for the maximum benefit.
  • Reconsider the retirement lifestyle you expect to have and adjust your plans to be in better alignment with the potential size of your retirement savings. You might need to compromise on luxuries to help ensure you have enough to fund things that aren't optional.
  • Look at the impact of working a year or two longer. Adjusting your expected retirement date gives you the opportunity to earn and invest more and potentially delay drawing down your assets. It may also allow you to defer claiming Social Security benefits for a few years — which could increase your benefits — and stay on your employer's health insurance until you're eligible for Medicare.
After you use the Retirement Evaluator to assess your situation, it's a good idea to review and update your plans periodically. Because the information you enter is saved, that will be easy to do. The Retirement Evaluator will automatically update the value of your Merrill Edge accounts, and you can update information about your outside accounts.
Getting a sense of your retirement numbers can reduce your uncertainty about the future. But planning your retirement is about more than numbers. "No matter what your current retirement savings and life stage, there are things you can do to be better prepared for retirement," says Debra Greenberg. The most important thing is to put time on your side by acting now.
Next steps

Footnote 1 This chart is a hypothetical example meant for illustrative purposes only. It does not reflect an actual investment, nor does it account for the effects of taxes. Spending is assumed to rise each year with inflation. The analysis assumes an expected portfolio return, net of fees, of 5% and expected inflation of 2.5%. Investment returns cannot be predicted and will fluctuate. Investor results may be more or less.

The projections or other information generated by the Merrill Edge Retirement Evaluator™ regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.

The examples presented are hypothetical and do not reflect specific strategies we may have developed for actual clients. They are for illustrative purposes only and intended to demonstrate the capabilities of Merrill Lynch and/or Bank of America. They are not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality.

This material should be regarded as general information on Social Security considerations and is not intended to provide specific Social Security advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.