How Long Will $2 Million Last Me in Retirement?

If you have enough money, you can retire comfortably and never look back. If you don’t, you may have to keep working so the lights stay on and the fridge stays full. On the other hand, it’s a tough question. How much money you need depends on health, lifestyle, location, longevity and so many more issues both within and well outside of your control. How long will $2 million last? The short answer is, most likely it will last you comfortably for the rest of your life. The longer answer is, even with no growth of any kind this nest egg will last an average household around 35 years. To find out how long it will last with your specific situation, consider working with a financial advisor.

What Is Your Annual Drawdown?

At its most basic, your retirement math is Account – (Drawdown x Year of Retirement). In other words, how much money do you have in your account? How much do you take out of the account each year? And how many years can you make those withdrawals before you run out of money? For a $2 million retirement account, we can start with the averages.

At the time of writing, the median income in the United States was just below $71,000 according to the U.S. Census. Most retirement advisors, meanwhile, recommend the 80% rule. This means that you should plan for your retirement account to replace about 80% of your pre-retirement income.

By those numbers, the median household should plan for around $56,800 per year in replacement income ($71,000 x 0.8). With a $2 million retirement account, you can coast on this for about 35 years ($2 million / $56,800).

What Is Your Annual Return?

But it’s not that simple (in a good way). You also get to plan for at least some rate of return.

Investors manage their retirement accounts differently over time. In your working life, your retirement account will often hold a significant measure of equity funds and even, perhaps, some individual stocks. As you near and enter retirement most people shift this balance away from a higher risk/higher reward assets and into safer investments.

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Either way, your portfolio will still generate some money over time. The question of how much, though, depends on how you invest. If you put your entire portfolio into the S&P 500 you can expect average growth of 10% per year over time, but with bigger dips in the off years. If you put your entire portfolio into bonds you can expect average growth of 1.6% per year, but with much less volatility.

A $2 million retirement account invested entirely in an S&P 500 index fund would return an average of $200,000 per year. That’s enough for most households to live on without even dipping into the principal, but in some years that account would take significant losses. So you would need to feel comfortable sometimes coasting on past withdrawals to let that account regain its value after losses.

If you invested entirely in bonds, your account would generate an additional $32,000 per year. This probably isn’t enough to live on, but depending on your lifestyle and Social Security benefits it can probably help stretch your retirement savings considerably.

What Is Your Lifestyle?

How long your retirement account will last depends on how much you take out of it and that depends significantly on how and where you live.

For example, take someone who needs nothing more than our median retirement income of $56,800. Say they collect the average Social Security benefit of $20,964 per year and have all of their money invested in bonds, collecting an average yield of $32,000 per year.

This alone would net them around $51,000 in perpetual income, money generated without ever touching their portfolio. They would only need to draw down an additional $6,000 per year. At that rate, a $2 million retirement fund would last, for all intents and purposes, indefinitely. Those numbers change for someone who needs more money and for someone who makes more or less from Social Security.

This is a key question for planning out a retirement then. Where do you want to live? How much does it cost to live there and what will affect those costs over time? How do you want to live? What kind of lifestyle do you want to enjoy and how will those costs change over time?

Calculate your retirement needs based on what kind of income you’ll need to meet those goals because how long a retirement account lasts depends on what you take out of it just as much as what you put in.

Social Security Matters

How much you collect from Social Security matters. A lot.

In general, your personal benefits from Social Security depend on how much you earned during your working life and when you start collecting it. The program pays benefits based on how much you paid in Social Security taxes, so wealthier households receive more and poorer households receive less. It also pays more based on the age you begin collecting benefits.

You receive full benefits if you begin collecting Social Security at full retirement age, currently set at 67. You get fewer benefits if you collect it early, up to a minimum payment at age 62. You receive the most benefits if you want until the maximum retirement age, currently set at age 70.

The result is that Social Security benefits are highly case-specific. At the time of writing, they can range from $45 per month at the lowest to $4,555 per month at the highest. This range matters. The maximum Social Security benefit can pay up to $54,660 per year at the time of writing. This is almost enough on its own to fund an average retirement income, although a household that receives this much money will likely have a more expensive lifestyle and need more income.

Regardless, understand how much you will receive in Social Security. It will make a huge difference in how long your retirement savings will stretch.

The Bottom Line

A retirement account with $2 million should be enough to make most people comfortable. With an average income, you can expect it to last 35 years or more. However, everyone’s retirement expectations and needs are different. It’s important to evaluate whether the money you have saved is enough to fund the lifestyle you want and for how long.

Retirement Tips

• How much you need to retire is a deeply personal question, so make sure you get equally personal advice. A financial advisor can help you properly make a tax plan that can save you money and improve your situation. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• When it comes to Social Security, there’s one more wrinkle people often don’t think about, taxes.

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