By Jeremy A. Wechsler, Esq.
Investment Advisor Representative
[email protected]
I get some version of this question pretty regularly: “Is $2 million enough to retire?” Because I used to practice law, my favorite two words are “it depends.” Two people can have the exact same amount saved and be in completely different financial positions depending on their age, spending, taxes, Social Security, mortgage, health care costs and what they actually want their perfect retirement to look like.
Take two couples who both have $2 million. One is 67, has the house paid off, spends about $8,000 a month and plans to start Social Security soon. The other is 58, still has a sizable mortgage, spends $13,000 or $14,000 a month and wants to travel extensively for the first ten years of retirement. On paper, they have the same amount of money. In reality, one may be in excellent shape while the other probably needs to do some more planning before walking away from work.
That’s why at FRS, we are weary of rigid rules on sustainable withdrawal rates, or needing a certain multiple of your salary by a certain age. They’re fine as a starting point, but they don’t tell you whether you can retire. What matters much more is the relationship between the money you have and the life you’re expecting that money to support.
Taxes also make much a bigger difference than people realize. Someone with $2 million entirely in a traditional IRA does not really have the same $2 million as someone who has a mix of IRA money, Roth money and taxable investments. The balances may look identical on a statement, but the amount you can actually spend after taxes can be very different. The same goes for Social Security. A strong benefit beginning at 67 or 70 can take a significant amount of pressure off the portfolio.
So when someone asks me whether $2 million is enough, I usually think the better question is, “Enough for what?” Enough to cover basic living expenses may be very different from enough to travel, renovate the house, help children or grandchildren, buy cars periodically and still feel comfortable during a bad stretch in the market.
There really isn’t a magic retirement number. What you want is a plan that shows your savings can support the life you actually intend to live, with enough cushion that you’re not panicking every time the market drops or an unexpected expense comes up. That’s a much more useful answer than anything based on a generic rule of thumb.
A qualified, experienced advisor can help you sort out your retirement planning and make sure you stay on track. Questions? Get in touch!