A $2 million nest egg is substantial and can provide financial security for many couples, but whether it’s enough for you depends on various factors.
First, consider when you plan to retire. If you retire at 60, $2 million won’t stretch as far as it would if you retired at 70, as the money needs to cover a longer retirement period. The earlier you retire, the greater the risk of outliving your savings, which makes proper financial planning essential.
Another significant factor for a couple is life expectancy. With advances in health care, people live longer, which means retirement savings must last longer.
Couples also face challenges if their lifestyle is too lavish. Expensive travel and leisure activities can burn through your $2 million faster than you may realize. Maintaining a frugal lifestyle or having additional sources of income can help bridge the gap. Market fluctuations and investment decisions play a role too, as poor investment choices can deplete savings quickly.
Here’s what to know about retiring on $2 million as a couple.
Consider the Cost of Retiring on $2 Million as a Couple
In addition to lifestyle choices, factors affecting the cost of retirement include health care expenses and inflation.
As a general rule, most retirees and pre-retirees underestimate what their expenses will be. But those factors can erode a $2 million retirement account for a couple.
“Not only do they underestimate their expenses, they underestimate the impact of inflation over a 20-year retirement,” says Charlie Massimo, senior vice president and financial advisor at Wealth Enhancement Group’s Long Island, New York, office.
For instance, if a couple needs $8,000 a month in the first year of retirement, by year 10, that grows to $10,600 per month with trendline inflation. By year 20, that’s $14,200 per month.
Additionally, retirees should avoid the trap of believing so-called “one-time” expenses are aberrations.
“In general, people tend to underestimate their expenses, especially when it comes to items like home repairs, new cars, big trips, and medical or dental expenses,” says Ashley Rittershaus, founder and financial planner at Curious Crow Financial Planning in Revere, Massachusetts.
Those expenses, she says, are often written off as one-offs. “But they happen often enough, and the amounts are large enough, that they could derail your retirement plan if not accounted for,” she says.
“It is best to include these less common expenses in your estimates, along with a buffer for anything else that might pop up,” Rittershaus says, adding that budgeting for those expenses needs to be increased over time due to inflation.
Estimate Annual Expenses in Retirement
“This is pretty black and white: You need to budget and add 10% to 20% to that budget,” Massimo says.
“We always keep a year’s income out of the market for our clients,” he adds.
That accomplishes two things. First, it assures that market volatility has no impact on income needs in the coming year. Second, it helps determine how quickly or slowly you spend the $2 million retirement fund.
Start by making a list of today’s expenses, then add things you want such as vacations, says Jonathan Maula, owner and lead investment manager at Castle Hill Capital in Gainesville, Virginia.
“It’s important to make a list of all your needs and then add the wants after,” he says.
Pre-retirees should be aware that they’re likely to spend more money on travel and hobbies in the early years of retirement. That tends to level off after a few years, Maula says. However, health care expenses often grow in the later years.
How Much Is $2 Million in Retirement for a Couple?
While it sounds like a lot of money, $2 million may not go as far in retirement as you may think.
Financial advisory firm NDVR recently analyzed how sensitive retirement savings are to factors such as inflation and taxes. The effects of those factors can be detrimental.
“For example, we found that just a 2% inflation rate over 40 years can wipe out approximately one-third of your safe spend rate,” says Brad Osten, a financial advisor at NDVR in Boston.
That means retiring couples need to carefully evaluate their long-term retirement needs, rather than randomly picking an amount that sounds good.
“Coupled with your unique financial situation and ideal retirement lifestyle, the days of an arbitrary number being enough for retirement are long gone,” Osten says.
Adjusting Expenses in Retirement
If your forecasts show you’re at risk of outliving your $2 million nest egg, it’s time to adjust your expenses.
One way to approach that is by being flexible on a year-by-year basis.
“You could always adjust expenses based on investment income and account returns,” Maula says.
“Have a baseline amount you need to survive, but if the market has a good year, maybe you do that extravagant vacation, buy that car you always wanted in cash or gift some money to your loved ones,” he says.
However, belt-tightening in years of poor returns isn’t as easy. Some expenses are harder to adjust; Massimo suggests taking control of the ones you can.
“Those discretionary expenses like travel, eating out and gifting to grandkids are all expenses that can be adjusted, especially in years when your portfolio might have lost value,” he says.
Consider Additional Income Sources
“Optimizing when you begin collecting Social Security can make a big difference in the total lifetime amount you receive,” Rittershaus says.
“The optimal strategy is different for different people, but for some, this may mean waiting until age 70 to begin collecting Social Security,” she says.
Retirees in good health have options for generating some extra income from other sources.
Maula suggests looking for income in areas where you already have interests.
“Love to golf? Maybe work the front desk two or three days a week or get a job as a golf ranger,” he says. “I bet you’ll get to golf for free too.”
That helps retired couples fill their time with activities they enjoy, Maula says, while also giving them extra cash.
The Role of Professional Financial Advice
Financial planners typically won’t mince words when it comes to giving you an accurate picture of your retirement income and expenses. They may be able to help couples manage and plan for their $2 million retirement savings.
“To start, they can tell you if you’re able to retire or if you’ll need to wait,” Maula says.
Advisors often serve as a buffer for investors who may have an urge to hit the sell button in a market downturn or spend impulsively to celebrate strong market returns.
“Most individuals make emotional decisions with their money that end up costing them in the long run,” Maula adds. “For us, our retirees love the peace of mind that someone is handling their investments for them so that they can continue to live their dream retirement.”
“If you are approaching retirement with $2 million, or any other amount, and not sure it will be enough, working with a financial advisor is money well spent to get some answers,” Rittershaus says.
She adds that a financial advisor can also monitor your plan throughout retirement to ensure you’re still on track, and alert you when adjustments are needed.
“Depending on your preferences, you could hire a financial advisor to manage your assets or just pay for a financial plan and financial advice,” she says. “You can also choose to work with a financial advisor on an ongoing basis or on a project basis.”