Just saying the words “one million” invokes thoughts of a massive amount. In terms of people, there are just 10 cities in the U.S. that have that many residents. In terms of days, there have been less than 740,000 days since the calendar shifted from “B.C.” to “A.D.”—not even three-quarters of one million.
In terms of money, though, there is a certain amount of prestige with the number one million that other numbers don’t possess. But has “one million” become more of a necessity than a status symbol?
Google “How much money do I need to retire” and you’ll find more numbers and calculations than a high school math book, but there’s one figure that shows up time and time again: one million.
Many consider “one million” to be the magic number of retirement. Have it and you’re in good shape; fall short and you’re in for a tough time. But is that true? Do you really need one million dollars?
The answer is an old favorite: it depends.
Some financial experts say you’ll need 11-12 times your annual pay stashed away for your retirement. Some even suggest having up to 18 times your annual pay. If you’re looking for a specific number on how much money you’ll need, somewhere between $825,000-$1.3 million is typically advised (based on a household earning $75,000/year).
But that’s a pretty large gap, and when it comes to retirement, it’s better to be safe than sorry. Here are some things to consider:
According to the Society of Actuaries, for a married 65-year-old couple, there is a 45% chance of one person reaching 90 and a 20% chance one will reach 95. Your retirement may need to sustain you for a few decades, not a few years.
Think about this. It would take approximately $12,000 today to have the spending power $5,000 had in 1982. Having “just enough” for retirement today could mean struggling years down the road. Plan on your spending power being cut in half every 25-30 years.
Health costs will rise as you get older. Even with healthcare benefits, a 65-year-old couple could end up spending $270,000 on out-of-pocket medical expenses. Without benefits, out-of-pocket costs could climb to $450,000. It is important to take these expenses into consideration when planning your retirement.
Inflation can rise. Your basement might get flooded. Your car may break down. There are a lot of things in life we can’t control, and they can add up quickly. It’s imperative to have money set aside for such contingencies.
So what do you do now? Look at your monthly expenses and find a few areas where you can cut back (or cut out completely). This is a very crucial step if you’re nearing retirement.
And when planning for your retirement, split up fixed costs and discretionary costs. Make sure all fixed costs are covered before moving on to discretionary expenditures.
Every budget is as unique as the individual maintaining it. There’s no one-size-fits-all retirement plan, but with careful planning and a little self-restraint, you can experience a financially stable retirement.