Can You Retire Comfortably on $1 Million in Savings?

Many of us are saving and investing for retirement, aiming to retire with a million dollars. But is that the right goal? Can you retire comfortably on $1 million in savings? There's no right answer to this, as each of us is in different circumstances.

Still, here's a look at the question.

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What does a million dollars get you?

First, let's assume that you'll be receiving Social Security benefits. The average monthly benefit for retirees was just $2,075 as of January, which is nearly $25,000 annually. If you earned more than average, you can expect higher-than-average benefits -- and vice versa.

If you apply the flawed-but-still-instructive 4% rule, you might withdraw 4% of your nest egg in your first year of retirement and then adjust subsequent annual withdrawals for inflation. (There are other retirement withdrawal strategies to consider, as well.)

The 4% rule would get you 4% of $1 million, or $40,000, as your first-year withdrawal. Add that to perhaps, say, $30,000 from Social Security, and you're up to $70,000 in annual income.

Meanwhile, let's say that half of the portfolio, $500,000, is in great dividend-paying stocks. If so, you'll be collecting income from that, too. If your overall average dividend yield is, say, 3%, that's $15,000 in annual income.

Plus, healthy and growing dividend payers tend to increase their payouts, often annually. So $15,000 could become $19,000 by year five and maybe $24,000 by year 10. (I applied a 5% annual growth rate there.)

If you have enough money in dividend-paying stocks, you might not need to be selling many shares, which can help your nest egg last longer.

For diversification, you might have a portion of your portfolio in interest-bearing investments, which would deliver even more income. Alternatively, you might spend some of your money on a fixed annuity, which would deliver fairly reliable income, too.

Considerations to take into account

So it's clear that you could have substantial income if you retire with a million dollars. But whether it's enough depends on lots of factors, such as:

• Where you live and the cost of living there
• Your spending habits
• Your health and the cost of your healthcare
• Whether you're carrying any debt, such as a mortgage
• Your taxes and other fixed expenses

What can you do if you're behind?

So -- what can you do, especially if you're behind in your retirement savings? Here are some ideas:

• Save more aggressively and invest more effectively -- such as in an S&P 500 index fund.
• Consider working a few more years, if you can, to build up your nest egg more. This also lets it have to support you for fewer years.
• Consider delaying claiming Social Security until age 70, if you can. For most people, 70 is the best age at which to claim your benefits to maximize them.
• Perhaps take on a part-time job for your first few years of retirement.
• You might downsize, moving to a smaller home and perhaps shedding one of your household's cars.
• You might even relocate to a region with a lower cost of living.

Whatever you do, be sure to have a solid retirement plan in place, and act on it.

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