Is 1 Million or 750,000 Enough for a Comfortable Retirement as a Couple?

Whether 1 million or 750,000 (after paying off a house) is enough for two people to retire on depends on several factors, including living expenses, withdrawal rates, investment strategies, Social Security benefits, longevity, and inflation.

Living Expenses

The first and most crucial factor is estimating your annual living expenses in retirement. This includes housing costs, healthcare, food, travel, entertainment, and other personal expenses. A common rule of thumb is that retirees need about 70-80% of their pre-retirement income to maintain their lifestyle.

Withdrawal Rate

A widely accepted guideline is the 4% rule, which suggests retirees can withdraw 4% of their retirement savings annually without running out of money over a 30-year retirement period. For a million dollars, this would mean $40,000 per year. For 750,000, it would be $30,000 per year.

Investment Strategy

Consider how your retirement savings will be invested. More conservative investments tend to provide lower growth but are less risky. Stocks typically provide higher returns but come with more risk. It’s important to balance your investment strategy to suit your risk tolerance and retirement goals.

Social Security

Factor in any Social Security benefits you and your spouse may receive. These benefits can supplement your retirement income and reduce the amount you need to withdraw from your savings. Ensuring a steady stream of Social Security is crucial for a successful retirement plan.

Longevity and Inflation

Consider your health and family history when estimating how long you might need to live post-retirement. If you anticipate living into your 90s, you may need more savings to cover those additional years. Additionally, remember that inflation can erode your purchasing power over time. Ensure your retirement plan accounts for rising prices.

Example Calculation

Let's consider an example with an estimated annual living expenses of $50,000:

If you withdraw 4% of $1 million, that's $40,000 per year. You would be short by $10,000 to meet your living expenses of $50,000.

If you withdraw 4% of $750,000, that's $30,000 per year, and you would be short by $20,000 to meet your living expenses of $50,000.

This example highlights that while 1 million might be sufficient if your annual expenses are low, you have other income sources like Social Security, and you are comfortable with a conservative withdrawal rate, 750,000 is likely more challenging, especially if your living expenses are higher than the annual withdrawals you can sustain.

Conclusion

It's advisable to create a detailed retirement plan or consult a financial advisor to assess your specific situation and ensure your retirement savings will meet your needs.