"For some people, $1 million in savings, and the annual interest it earns, may be plenty; others might need more. Tempting as it is to put a single number on retirement, the answer to how much you'll need to save really depends on a careful look at the life you expect to lead," says Debra Greenberg, a director in the Retirement and Personal Wealth Solutions at Bank of America. "Retirement planning isn't just about your portfolio; it's about deciding on a lifestyle and legacy that will make you happy, and ensuring you have the means to achieve them."
Your retirement plan should reflect your personal goals, where you'll live, what type of home you'll have and the travel or other activities you hope to pursue.
— Debra Greenberg, Director, Retirement and Personal Wealth Solutions, Bank of America
Primary factors to consider when determining if $1 million is enough to retire
- Your current age and the age at which you plan to retire
- Your expected lifespan, based on family and personal medical history (Consider how much you likely will need for both out-of-pocket healthcare costs and long-term care)
- Your post-retirement goals (travel, philanthropy, etc.)
- Where you plan to live
- What type of home you'll have
- Whether you plan to work during your retirement years
- Sources of retirement income, such as 401(k), IRA, Roth IRA, Social Security, stocks, savings, pensions, rent and royalties, inheritance, annuities, insurance
- The potential impact of taxes (For example, saving $1 million in a pre-tax account in a 401(k) plan or IRA is very different than saving $1 million in a Roth account in a 401(k) plan or Roth IRA due to the impact of taxes at the time of distribution)
Keep in mind your family medical history and the fact that today's longer lifespans may mean more years you'll have to pay for. You don't want to outlive your money. But if you're worried that you don't have enough, don't be discouraged. With a better understanding of your needs, you can review your current savings and expected income and make any necessary adjustments.
How much income could my current investments provide for me?
For a rough idea, the chart below shows the annual income generated from three different 'retirement nest eggs.' "In addition to personal savings, don't forget to consider additional income you may have from sources such as Social Security or a pension," Greenberg says.
Even if your retirement account looks impressive on paper, the income it generates will need to help sustain you through decades of retirement, when you'll face rising healthcare costs, inflation and unexpected expenses.
Will your savings be enough for the retirement income you'll need?
You may be surprised how much — or how little — even generously sized accounts could potentially provide over the course of a retirement. The examples below illustrate how much a 65-year-old can safely withdraw in the first year of retirement.
Annual income
from savings*
Savings value at age 65 is $300,000
Annual income from savings, see footnote asterisk, is $12,000/year
Savings value at age 65 is $1,000,000
Annual income from savings, see footnote asterisk, is $40,000/year
Savings value at age 65 is $1,500,000
Annual income from savings, see footnote asterisk, is $60,000/year
Footnote * The accumulated investment savings by age 65 could provide an annual retirement income, adjusted for future inflation (in today's dollars), of this amount for life if withdrawn at a sustained spending rate of 4%. This example is for illustrative purposes only as the amount in hand will differ due to the tax implications if the assets are held in a pre-tax or post-tax account (or a combination of both), as well as due to an individual's personal circumstances.
Looks like I'm not quite where I want to be. How do I close the savings gap?
If the results show a gap, don't panic. That's common, and you have a number of options to help close it. Depending on your situation, you may want to:
Estimating your retirement income needs is not an exact science, and your needs — as well as your vision for retirement — will evolve. No matter your life stage or how much you've saved, a careful review of your expected needs and income can help you
prepare for the years ahead.