I Used to Think I Needed $1 Million to Retire Comfortably. Here's What Changed My Mind.

One of the reasons people may find saving for retirement difficult is that it's hard to come up with an end goal.

If you're trying to buy a $40,000 car, you need to save $40,000. It's pretty simple. But there's no set cost to retirement, so it's hard to get a handle on how much savings you'll actually need.

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Back when I first started saving for retirement, I told myself I was going to aim for $1 million over time. But I've come to realize that $1 million probably won't buy the sort of retirement I want. And you may feel the same.

Why I no longer think $1 million will cut it

I want to be clear that $1 million is a very respectable sum of money to have in an IRA or 401(k). But when we break $1 million down in terms of annual income, it may not amount to as much as you'd think.

If we apply the 4% rule to a $1 million nest egg, it amounts to $40,000 in annual income, not including adjustments for inflation. That's a decent amount of money. But I wouldn't call it a lot.

Now most people with a $1 million IRA or 401(k) also have Social Security to look forward to. But that may not be a particularly generous retirement income stream.

For one thing, benefits are at risk of broad cuts. And also, the based on the average retirement benefit today, the typical senior is only getting about $25,000 a year in Social Security right now.

If we take that $25,000 and add it to the $40,000 you might get from a $1 million nest egg, it brings us to $65,000. That may be enough to cover basic expenses and even leave a little extra money left over for leisure and entertainment.

But let's also remember how much of a beast inflation has been in recent years. And so while $65,000 might seem like a decent retirement income, if costs continue to rise at a rapid pace, it's a sum that could leave many people with a serious shortfall.

I'm now aiming higher

I don't have a specific retirement savings goal in mind right now. But I do know that I won't be happy retiring on $1 million.

And it's not because I'm a fancy person. I live fairly modestly now, and if anything, I intend to downsize in retirement with the goal of lowering my costs. I'm also someone with relatively inexpensive hobbies -- reading, hiking, and baking, to name a few.

But I'm also realistic. I know that healthcare costs can rise in retirement. And I know that even a small, mortgage-free house can come with a host of expenses.

I don't want to spend retirement stressed about money. So I'd like to retire with extra, even if I don't end up needing to use it.

If you're nearing retirement with $1 million saved, that's not necessarily cause for panic. But if you're a good number of years away from retirement and you have the potential to save more than that, you may want to so you have the flexibility to enjoy your senior years to the fullest.

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