As a final point, it’s important to mention that $1 million might not be enough for a comfortable retirement, especially if you’re decades away from retiring.
First, keep in mind that all of the figures in this article are in today’s (uninflated) dollars. A million dollars in 30 years will not have the same purchasing power as it does today. In fact, based on historical inflation rates, $1 million in 30 years will be the equivalent of just over $400,000 in 2017, in terms of purchasing power.
Second, the widely used 4% rule of retirement says that you can safely withdraw 4% of your savings during your first year of retirement, and increase your withdrawals in subsequent years to keep up with inflation, without fear of running out of money. The idea is that over time, your investment returns will help counteract, or even reverse, the withdrawals you make.
However, if you withdraw 4% of $1 million each year, you’ll only get $25,000 in annual income from your savings. Even when factoring in Social Security, will that be enough?
It’s certainly good to have a concrete savings goal like $1 million, but it’s also important to accurately assess your “retirement number” — that is, how much you’ll really need to retire comfortably.
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