Retirement planning... is 1 mil reasonable?

Question

I subscribe to several financial magazines and the perennial topic is always retirement planning. Many pro's suggest a $1 million savings for a couple to be fully prepared for retirement. I find this absurd. Assuming we retire at age 60-65, how could anyone possibly think that over the next 15 years (God willing) we could need $1 mil!! (That estimates out to around $100,000 per year salary!) After all, the kids are out, the mortgage is paid, and needs and wants are certainly lower than in middle age.

Now don't get me wrong, DH and I are savers and for our age group I know we have better long term savings than the majority of our peers. Additionally, DH will have a pension. But still, I get frustrated when I read the advice. So can someone explain the thinking behind a $1 mil retirement plan in terms that I can more fully grasp?

TIA

Answer 1

Your life expectancy at age 65 is 20 years, not 15.  (The people who kept the average down died already.)  

You could easily live 30 years and must plan to be able to eat--you can't just take your total assets and divide by 15 and say, I can spend this much and I'll be okay.  There is a new 4% rule of thumb--and that's $40K a year if you have a million in savings.

While your house is paid off, you will need to make repairs, pay insurance, taxes, etc.  Your cars will need repairs and replacement.  Health care is a big wild card.  Assisted living is $3000/month and the price will go up.

Answer 2

OH YEAH, 1 MIL is enough for a big retirement.

when u have that much money you can only get more.

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Answer 3

It depends upon familiy history and the fact that people are living longer.  For example our company owner lived to age 94 and his brother lived to 96.  A mom of a friend recently passed away at age 97.  My mom is in excellent health at age 78.  One website estimated based on family history that I could live to age 92 (if I lose some weight and get more execise).  Medical expenses or nursing home could eat up more than you expect.

What you really want is enough to be able to enjoy retirement and sustain you indefinitely if you live longer than you think now.  Unless you are close to retirement age, who knows what medical advances (or taxes) there will be when you retire.  If you plan to use up all your money in 15 years, what will you do if you live 25 or 30 and everything is 5 or 10 times more expensive?

A general rule of thumb is to intially spend no more than about 4 - 4.5% of your savings per year because you will need more later to account for inflation.

Answer 4

hello - one million is the minimum actually.  if you are already good savers then keep doing it.  try to get up to 3 or 4 million actually.  than you will be fine.  plan to spend only the interest and you will have enough left for long term care and those types of things if they are needed.  you will also be able to leave something to your children or set up accounts for your grandchildren for college etc.

good luck.