To figure out if $1.5 million is enough for retirement, you’ll need to consider Social Security, pension, and other income, as well as fixed and variable costs. For example, your lifestyle and how long you will live after retirement have a big impact. Let’s break down these and other factors to help you figure out if you can retire comfortably with $1.5 million.
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factors into consideration
It’s not easy to tell if $1.5 million is enough to retire comfortably, in part because there are so many factors at play. Here are four common factors to consider:
Social security. The average monthly Social Security payment is $1,551.66 per month As of November 2022. This equates to $18,619.92 per year in monthly benefits. While living on that amount alone can be difficult, it can be a good supplement if you already have retirement savings. Typically, the Social Security Administration (SSA) provides a cost-of-living increase (COLA) each year Social Security payments for inflation. Thus, these payments should continue to be a good supplement to Social Security even as costs rise.
pensions. According to the US Census, the median amount of pension and retirement income was $8,538 in 2017. Note that this amount does not separate out pension and retirement income. retirement income, but. Pensions are becoming increasingly rare in the private sector, but they can also give your retirement a nice boost. Jobs that may still provide a pension include state and local government jobs, teaching jobs, and jobs in finance.
total retirement income. in 2021, The total income for those 65 and older was $47,620, according to the US Census. In addition to Social Security and pensions, the census also takes into account earnings, supplemental Social Security income, property income, and other income. As mentioned earlier, the census combined retirement income with pension income, which totaled only about $8,500. However, this means that the median household income, when not including pensions or retirement income, is $39,082. Not many people get a pension these days, so this figure reflects what the average family earns in addition to retirement income.
The 4% rule. A rule of thumb commonly cited in the personal finance community is 4% base. With this rule, you can safely withdraw 4% of your investment portfolio each year. If you have a portfolio of $1.5 million, that would equal $60,000. If your portfolio still contains equity allocations, it can continue to grow even when you withdraw. One study found that most investment portfolios will last 30 years under this rule or as long as 50 years in some cases. If you add this to the Social Security average plus additional Social Security income, you would have an income of $76,840 per year. This does not include property income, dividends or pensions.
How much do retirees usually spend?
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The average annual spending for those ages 65 to 74 in May 2014 was $48,885. According to the Bureau of Labor Statistics. Adjusted for inflation, this comes to $61,175. But your retirement will still be financially secure even without income from earnings or property. Of course, there are several caveats, including whether Social Security payments will be consistent. However, for now, that $1.5 million should allow you to retire comfortably. Here are two things to consider when calculating your spending:
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Lifestyle. The numbers we’ve discussed here are just averages, so it doesn’t mean that they will provide a comfortable retirement in all cases. For example, if you have worked hard and now want to enjoy a lavish lifestyle of air travel and fancy dinners, you may find that $1.5 million is not enough. Or if you live in an area with a higher cost of living, you may find that you need additional income. You may have to make adjustments in those cases.
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medical expenses. Medical expenses can vary widely, but for some they can be significant. For example, Fidelity reports that the average retired couple 65 years old would need about $315,000 for medical expenses. While this number is a prediction for the rest of your life, let’s say you live to the age of 85. This means that you need an additional $15,750 annually, or $7,875 per person. Our income of $76,840 is still safe if you’re single, but for a couple, it would put us against our retirement earnings.
minimum
Having a $1.5 million portfolio is no small feat: many people never reach the seven-figure mark. In many cases, this amount will set you up for a comfortable retirement. However, it will not necessarily be enough for everyone. For example, if you want to live a luxurious retirement life or live in an expensive area, you may find that $1.5 million is not enough. So, as is often the case when dealing with finances, the answer to the question posed is: it depends. Discuss your situation with a financial advisor to determine whether your retirement will be financially secure.
Retirement tips
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Deciding how to invest can be a challenge, especially when you don’t know how much your money will grow over time. SmartAsset investment calculator They can help you estimate how much your money will grow to help you decide which type of investment is right for you.
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