$1 Million Isn't What It Used To Be
By Brett Gottlieb and John Mc Kean
Have you noticed the shift? In the past, the “golden standard” for a well-funded nest egg was $1 million. With $1 million saved away, you could live a dream retirement, enjoy a high standard of living, and not worry about running out of money.
But things are changing.
That $1 million retirement rule you’ve heard about has one caveat. It only applies to folks on the verge of retiring—not those in their 40s and 50s who still have a decade or two more to wait.
Inflation is an insidious beast. Retire today and you might be able to survive on $1 million. Retire in 20 years and it may not be enough to cover your living expenses.
So that begs the question: If $1 million won’t cut it anymore, how much do you actually need?
It turns out this is a loaded question. There is no one-size-fits-all answer. The amount you need will fluctuate dramatically depending on your circumstances and where you live. However, by asking yourself these four questions, you should start to form a clearer picture.
Where Will Funds Be Drawn From?
We’ll start with a question that’s easily overlooked. Where is the majority of your retirement invested—in tax-deferred accounts or tax-advantaged accounts? Your answer makes a significant difference in how big your nest egg needs to be.
Why? Because if your retirement fund is made up of tax-deferred accounts (i.e., a Traditional IRA), it means the total you see in your account isn’t all yours. You still owe taxes on it. On the other hand, if you’re invested in tax-advantaged accounts (i.e., a Roth IRA), it’s all yours.
The bottom line: your nest egg needs to be larger if you still owe taxes on it.
What Does Your Dream Retirement Look Like?
This one’s a bit more obvious. What kind of lifestyle do you want to have in retirement? Do you plan to travel the world? Work on a passion project for extra income? Help your grandkids pay for college?
Your retirement fund is going to need some major padding if you’re expecting a luxury lifestyle. But if you prefer a simpler lifestyle or want to continue working in retirement, you can get by with much less.
Where Will You Live?
One of the biggest reasons the one-size-fits-all rule does not work is location, location, location. If you live in an expensive part of the country, you may need more than twice as much for your cost of living expenses as you would in a cheaper area.
Let’s go back to the $1 million example for a moment. One million dollars will last you about 24 years in Mississippi, but that same $1 million will only get you 11 years in Hawaii. Big difference, right? Please note that these estimates are based on normal living expenses (no world trips), and do not factor in inflation. (1)
When Will You Retire?
With this last question, we make a full circle back to the inflation problem. We know that a $1 million retirement today is not the same as a $1 million retirement 10 years ago. And the trend continues. With a long-term average annual inflation rate of about 2%, you can expect prices to double every 30 years. (2)
Let’s put that into perspective. If you’re in your 40s and plan to retire in 20 years, your nest egg needs to be almost one-and-a-half times the size as that of your neighbor who is retiring today. If you base your nest egg goal on how much your retiring neighbor has saved, you’re in for an unpleasant surprise.
The Bottom Line
With so many different factors determining how much is “enough,” you can see how a one-size-fits-all approach really has no merit. The best way to get a clear picture of what your retirement savings goal should be is to work with a financial advisor. We at Comprehensive Advisor would be happy to sit down with you to create a personalized plan. Not only will we help you determine how much you should save, but we’ll also show you the steps to get there. If you’re interested in learning more, email us at info@ComprehensiveAdvisor.com or call (760) 813-2125.
About Brett and John
Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states.
John Mc Kean, financial advisor, joined Comprehensive Advisor in 2016. He has been in the financial services and retirement planning industry for over six years. John is Life Insurance licensed in California.
Brett and John previously worked as Registered Representatives with Securities America, one of the largest independent broker/dealers in the country, and currently offer advisory services through Legacy Road, LLC, a Registered Investment Advisor. Both are passionate about educating clients on retirement planning. They take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.
Advisory services offered through Legacy Road, LLC, a Registered Investment Advisor.
Brett Gottlieb, Investment Advisor Representative. California Insurance License #0C68886.
John Mc Kean, Investment Advisor Representative. California Insurance License #0K37445.
Comprehensive Advisor and Legacy Road, LLC are not affiliated.