Retiring on $2 million doesn't sound half bad, right? It's $1 million more than what most financial experts have traditionally recommended and roughly 684% more than what most Americans have saved by the time they reach retirement age, which is about $255,200, according to the Federal Reserve. But will $2 million really last you the full length of your retirement or should you be saving more? Let's take a look.
It depends on your annual expenses
The best way to determine how long $2 million will last is to estimate how much you'll spend each year in retirement. Easier said than done, but to get a rough idea you can use the 80% rule, which states you'll need about 80% of your pre-retirement annual expenses for each year of retirement.
By way of example, let's look at how much the average American household spent in 2021, which was about $67,000, according to research from The Ascent. If we take this number as your pre-retirement expenses, then 80% would be $53,600. Assuming that's how much you'd spend in retirement, you could live for about 37 years on $53,600 per year with a nest egg of $2 million (assuming that $2 million is earning 0% and not factoring in Social Security). If that holds true for you, you could retire at 63, and live on $53,600 each year until you turned 100.
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Not bad, right?
Of course, that doesn't factor in inflation. In fact, if you were to retire even 15 years from 2021, $53,600 would be about $79,544 in 2036 dollars, assuming a 2.5% inflation rate from now until then. Using that as your annual expenses, you could retire for about 25 years on $2 million. Still not bad, but retiring at 63 would mean you would outlive your retirement savings if you lived past age 88.
Another potential limitation with using the 2021 average household expenses is that it includes $1,885 for housing and $913 for transportation. Some retirees, however, will have paid off their homes and cars and will no longer need to commute for work, drastically reducing how much they spend on both. Conversely, the estimate may not be enough for food ($691) or healthcare ($454), so the expenses you scrap could be balanced by new expenses.
So is $2 million enough to retire?
The golden number here might be $57,000. If you were to retire at 65 and live for at most 35 years, you would need to keep your annual expenses at or below $57,000 to live on a $2 million nest egg, assuming you don't live past 100.
This would put you in a great position to retire comfortably. In fact, according to research by the Motley Fool, the average retiree today spends about $48,872 per year in retirement. At $57,000, you would have more than enough, with about $8,000 as a cushion.
As noted above, inflation could make this tricky, as the longer you live, the less spending power your money has. Fortunately, you can use certain income-producing assets, like annuities and CDs, that have low risks and can help you at least keep pace with inflation and hold on to your purchasing power for longer. You'll also likely be eligible for Social Security.
As far as saving $2 million for retirement, it's a challenge. You'll likely need to open a brokerage account and invest a portion of your annual income in stocks, bonds, and various types of funds, like ETFs and mutual funds. It's also a good idea to take advantage of employer-sponsored retirement plans, like 401(k)s, especially if your employer will match some of your contributions.
The earlier you start investing, the more time you give your money to grow. You might not be able to sock away $2 million from your salary alone, but with the power of compound interest, you could amass a significant amount to retire comfortably.
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FAQs
You retire at 40 – With an estimated life expectancy of 90, you need 50 years of income. Across those years, $2 million could equate to approximately $40,000 annually or $3,333 monthly. This should be enough to cover you, but things may be tight if your outgoings are high as a retiree.
How long will $2 million last in retirement? ›
A retirement account with $2 million should be enough to make most people comfortable. With an average income, you can expect it to last 35 years or more. However, everyone's retirement expectations and needs are different.
How long will $1 million last in retirement? ›
How long will $1 million in retirement savings last? In more than 20 U.S. states, a million-dollar nest egg can cover retirees' living expenses for at least 20 years, a new analysis shows. It's worth noting that most Americans are nowhere near having that much money socked away.
How much net worth do you need to retire at 60? ›
With careful planning, $2.5 million can fund a comfortable retirement starting at age 60. But as with any major life transition, retirees must weigh a complex set of variables from taxes to healthcare to ensure their nest egg lasts decades.
What percentage of people retire with $2000000? ›
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
How much monthly income will $2 million generate? ›
Across those years, $2 million could equate to approximately $68,966 annually or $5,747 monthly. This should serve you incredibly well and make you feel comfortable and cushioned, especially if you have relatively low expenses as a retiree and a normal lifestyle.
How much of net worth should be in house at age 65? ›
Therefore, you should consider the role of home equity and mortgage payments in your real estate allocation. According to some experts, the optimal range for home equity is between 20% and 50% of your net worth.
How much money do most people retire with? ›
Here's how much the average American has in retirement savings by age
| Age Range | Average Retirement Savings |
|---|
| 45-54 | $313,220 |
| 55-64 | $537,560 |
| 65-74 | $609,230 |
| 75 or older | $462,410 |
2 more rowsMay 5, 2024
Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.
How long can I retire on $500k plus Social Security? ›
Summary. If you withdraw $20,000 from the age of 60, $500k will last for over 30 years. Retirement plans, annuities and Social Security benefits should all be considered when planning your future finances. You can retire at 50 with $500k, but it will take a lot of planning and some savvy decision-making.
Household wealth or net worth is the value of assets owned by every member of the household minus their debt. The terms are used interchangeably in this report. Assets include owned homes, vehicles, financial accounts, retirement accounts, stocks, bonds and mutual funds, and more.
What is considered a wealthy retirement? ›
Super wealthy (99th percentile): $16.7 million. Wealthy (95th percentile): $3.2 million. Well off (90th percentile): $1.9 million. Middle class (50th percentile): $281,000.
What net worth is considered rich? ›
In the United States, the concept of being rich is often a subject of discussion, curiosity and, sometimes, aspiration. Charles Schwab's 2023 Modern Wealth Survey provides insights into this topic, revealing that the average American equates being wealthy with a net worth of approximately $2.2 million.
Is 2 million in assets rich? ›
Being rich currently means having a net worth of about $2.2 million. However, this number fluctuates over time, and you can measure wealth according to your financial priorities. As a result, healthy financial habits, like spending less than you make, are critical to becoming wealthy, no matter your definition.
How many households have 2 million net worth? ›
About 16 million American families have wealth exceeding $1 million, up from 9.8 million families in 2019, and nearly 8 million families have wealth exceeding $2 million, up from 4.7 million.
What does a 2 million dollar retirement look like? ›
4% Retirement Rule
This calculation should also adjust for inflation annually, which is supposed to help you avoid running out of money in retirement. According to the 4% retirement rule, if you have $2 million in retirement savings, you could withdraw $80,000 annually.
How to retire with $2 million if you make $100000 per year? ›
If you want to retire with $2 million, you'll need to invest about 12% of a salary of $100,000 starting in your 20s. Waiting until you're older will require a larger portion of your pay. If you wait until your 30s, then that number is closer to 17% of your salary.
How much money do you need to retire with $80,000 a year income? ›
For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04). This strategy assumes a 5% return on investments, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would be living at the time you retire.
