I Used to Think $2 Million Was More Than I'd Ever Need for Retirement. Here's Why I've Changed My Mind.

You'll find few people who don't think $2 million is a lot of money. I certainly do. For many years, it seemed like more than I'd ever need to retire on, considering that I live in a pretty affordable area and tend to be frugal.

However, a few things have changed my perspective over the last few years. Now, I'm not sure I'll feel comfortable retiring with less than that to my name.

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Why $2 million probably won't go as far as you might think

When I first thought $2 million sounded like plenty to retire on, I was thinking in terms of today's dollars. If you have that sort of nest egg, you can spend about $80,000 per year, according to the 4% rule, and your savings should last you at least 30 years. You'll probably also get Social Security benefits to supplement that. For many people, that's enough for a comfortable retirement, maybe even involving some big-ticket purchases or trips.

But realistically, I'm three decades away from retirement, and inflation will continue to do its thing during that time. It's pretty much a guarantee that $80,000 won't buy anywhere near the same lifestyle in 30 years as it does today. It may still be possible to retire on $2 million at that time, but that lifestyle may not be as comfortable, and I don't want to spend my retirement pinching pennies.

Then, there's the big question mark around Social Security's future. The program is facing insolvency in just six years. While Washington will almost certainly take steps to avoid extreme benefit cuts, it's possible that benefits won't go as far in the future as they do today. That'll increase the savings burden on my plate.

We don't know what Social Security will look like in the future, so when Congress comes up with a plan, I'll have to revisit my retirement plan to decide whether I need to increase my savings target in light of the changes.

What if you can't save $2 million?

The idea that $2 million might not be enough to retire on is a concerning one, especially when you're struggling to save for retirement right now. If you're in this situation, it's important not to panic. You're definitely not alone.

Instead of worrying about how far behind you are, focus on saving what you can. Claim any 401(k) match you qualify for if you're able to, and increase your retirement contributions whenever you're able to do so. As you approach retirement age, you can reassess where you are and figure out what's feasible for you.

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