For many people, $1 million may sound like a lot of money to have for retirement. But how far will that amount really go?
There’s no one-size-fits-all process when it comes to calculating that answer. Instead, the life expectancy of your retirement money is determined by your lifestyle needs, investment mix and residence, among other factors.
That means accounting for essential living costs, health care and the kind of lifestyle you’re planning. Retirees who want to travel should plan to spend more than people who want to stay closer to home and spend more time with family and friends.
Additionally, geography plays a role. Some states and countries cost less than others when you factor in taxes and housing costs.
Optimizing investment strategies, including diversification and tax-efficient withdrawals, can also help stretch your retirement funds.
What Is Your Vision of Retirement?
When trying to figure out how long your money will last, understand your retirement vision, says Joe Stepanek, a wealth advisor with Thrivent in Andover, Minnesota.
That clarity, he says, “allows you to adjust your savings and spending to work toward making your dreams a reality. Ask questions that allow you to get specific on your future plans, like where and when you want to retire, how many years you’re planning for, passions you’ll pursue and if there’s flexibility in your plan.”
Establishing a retirement budget is essential, says Louis Czerwinski, a certified financial planner at Allegiant Wealth Management in Wallingford, Connecticut.
“Are you someone who wants to travel the world, or are you content sipping a cup of coffee with a book on your front porch? Both of these expense profiles will have vastly different retirement expense needs,” Czerwinski says.
He recommends differentiating between essential and discretionary expenses and forecasting potential changes during retirement.
“For example, if you plan to downsize or move to a state with lower or no income tax or lower real estate taxes, your plan should reflect those lower costs for retirement,” he says.
Don’t Forget Inflation and Health Care Costs
A common mistake is underestimating retirement expenses and not factoring inflation and the rising costs of health care into your calculations.
As a rule of thumb, Stepanek says, save about eight to 10 times your salary for retirement. To prepare to live on a fixed income, review all your assets, including individual retirement accounts, 401(k)s, annuities, brokerage accounts, pensions, expected Social Security benefits and real estate holdings.
“If you need more savings, consider working with a financial advisor who can help you determine alternate sources of income to fill the gap,” he says.
Stepanek cites Thrivent’s 2022 Retirement Readiness Survey, in which two-thirds of retirees and preretirees considered inflation a top financial concern for their golden years.
“Plan for potential future risks, like market volatility, inflation or unexpected health events that could derail your financial picture and impact how you pay for expenses in retirement,” he says.
Paying Off Debt Can Stretch Retirement Dollars
Eliminating debt is also a way to be sure your dollars go as far as possible in retirement. Debt in retirement can strain limited resources, making it challenging to cover essential expenses and jeopardizing financial security.
“Set a goal of paying down all or at least a significant amount of your debt to minimize the financial impact in retirement,” Stepanek says.
A common mistake is believing expenses decline in retirement. In fact, retirees who travel or take up new hobbies may spend more. Downsizing your home may save some money, but be aware of new expenses associated with that move, such as homeowners association fees or facility fees at a senior living community.
Where You Live Matters
The value of $1 million can vary considerably based on geographic location, says Czerwinski, as local tax structures, health care costs, housing prices, and inflation rates influence how long that nest egg will last.
For example, he says, in California, while there’s no tax on Social Security retirement benefits, the state’s sales taxes are among the highest in the nation. That’s in addition to steep living costs, especially in urban areas.
“This implies that $1 million might deplete more quickly in California than in other states,” he says. “In contrast, Florida is known for being more tax-friendly to retirees. The state has no personal income tax, meaning it won’t tax pensions or most other retirement income sources.”
Investment strategy also plays a role in how long $1 million lasts in retirement. Your investment allocation is crucial because it determines the growth potential and risk exposure of your portfolio, affecting your ability to make that $1 million nest egg last as long as you do.
“Diversify your allocation and income sources,” says Brian Windsor, vice president and financial advisor at Bogart Wealth in McLean, Virginia.
“You may want to consider managing your sources of monies for tax optimization and cash flow,” he adds.
Best Mutual Funds and ETFs for Retirement Today
| Mutual fund or ETF | Expense ratio |
| Vanguard Target Retirement 2025 Fund (ticker: VTTVX) | 0.08% |
| Vanguard LifeStrategy Conservative Growth Fund (VSCGX) | 0.12% |
| iShares Core Moderate Allocation ETF (AOM) | 0.15% |
| iShares TIPS Bond ETF (TIP) | 0.19% |
| iShares 0-3 Month Treasury Bond ETF (SGOV) | 0.07% |
| Vanguard Wellesley Income Fund Investor Shares (VWINX) | 0.23% |
| Vanguard Wellington Fund (VWELX) | 0.25% |
Optimizing Your Investment Portfolio
Among Windsor’s clients, one strategy involves leaning on nonretirement money early in retirement, which allows qualified, tax-deferred funds to grow for longer.
Frequently, preretirees make the mistake of only setting their sights on the amount to be saved by their retirement date. In doing that, they overlook the next piece of retirement saving: making sure the money lasts as long as 35 years.
“Remember that your investing time horizon is not to retirement, but through retirement,” says Devin Carroll, retirement planner at Carroll Advisory Group in Texarkana, Texas.
“Build your investment allocation on your personal goals and risk tolerance,” Carroll adds. “Don’t get too caught up in the noise of the short term, and stay disciplined in your approach.”