Is $2 Million Enough to Retire? Here’s How Long It Will Last

Most of us dream of a comfortable retirement. If you are fortunate enough to have a $2 million nest egg in the bank when you retire, you may wonder if this will suffice to ditch the nine-to-five grind and embrace your golden years with financial security. While this figure may seem substantial, the ability to retire comfortably with $2 million depends on many factors.

$2 million is significantly more than the national average. The mean retirement savings among Americans of $334,000 is substantially higher than the median savings of $87,000, indicating some significant outliers. High-savers with more than $2 million in retirement savings pull up the average retirement savings number. Let’s look at some key variables to determine if $2 million might be enough to secure a comfortable retirement.

Factors Determining Whether $2 Million is Enough to Retire

Whether you are retiring with $200,000 or $2 million in your retirement accounts, there are several factors to consider regarding whether the amount you have saved will be enough to sustain a comfortable retirement. Even after you retire (let’s say at age 65), keeping your money invested in a mix of assets is the key to creating a living budget that covers your daily expenditures and leaves money for vacation, eating out, etc. 

The 4% rule of post-retirement investing can determine if $2 million is appropriate. The 4% rule is a guide that assumes that your investments, on average, will return 4% per year. If you invest $2 million, the average amount of cash flowing from your investments each year will be about $80,000.

You would receive that amount per year without impacting the $2 million principal, meaning it would continue to generate this amount throughout retirement. Whether it’s sufficient for retirement depends on your investment and money management strategy, lifestyle, healthcare, other expenses, and other factors. Let’s look into these factors in more detail:

Market Performance and Investment Strategy

Your investment strategy and the performance of the underlying investments will impact the longevity of your retirement savings. A well-diversified portfolio, with a foundation of social security income and an income annuity, can mitigate the impact of market volatility.

Social Security and Pension Benefits

Social Security and pension benefits (and/or IRA accounts) can supplement your retirement income. Understanding the proper timing and impact of these benefits is essential in framing your overall financial picture.

Lifestyle and Spending Habits

Your retirement lifestyle and spending habits are essential in determining whether $2 million is enough of a starting point to sustain you in retirement. Consider your desired standard of living, housing, travel plans, and any hobbies or activities that can eat into your estimated $80,000/year investment income.

Inflation and Cost of Living

Inflation can have a tangible impact on your purchasing power over time. When building out a retirement budget with your financial advisor, you should anticipate that the cost of living will likely increase year-to-year. The rising cost of healthcare can be especially punitive to a retirement budget. Factoring in these increases is essential for long-term financial planning.

Retirement Age and Longevity

Your retirement age and life expectancy should also be taken into consideration when cobbling together a budget for retirement. If you retire earlier than the traditional age of 65, you will likely need a more significant nest egg in anticipation of a more extended retirement. Advances in healthcare have increased life expectancy, but if you have health issues when entering retirement, you may want to anticipate a shorter retirement period and budget accordingly. Once again, an income annuity can, along with social security payments, create a solid foundation to support your retirement, no matter how long or short that might be.

Healthcare Costs

As mentioned, healthcare expenses tend to rise in retirement, and unforeseen medical issues can significantly impact your budget. Factoring in unexpected healthcare costs and considering insurance options to hedge against them are essential to retirement planning.

Debt and Financial Obligations

It’s hard to enjoy retirement if you carry debt as part of your monthly budget. Mortgages, car loans, and credit card debt can make up a big part of your monthly expenses. Assess your current debt situation and work towards minimizing or eliminating outstanding balances, especially those with high interest rates, before retiring. This will free up more funds for enjoying your retirement years.

Economic Conditions

Economic conditions, including inflation, interest rates, and tax policies, can impact your retirement savings. Staying informed about these factors allows you to make informed financial decisions.

Flexibility and Adaptability

Life is unpredictable, and unexpected events can impact your financial situation. Building flexibility and adaptability in your retirement plans can help you navigate unforeseen challenges.

How Long Will $2 Million Last in Retirement?

As the phrase goes, “That depends!” If your portfolio averages a 4% return every year and your expenses stay static, $2 million should last a lifetime, no matter how many years that is. But the reality is that the stock market and other investment returns — and your expenses — will likely vary and limit how long your nest egg will last.

But the true answer of how long $2 million will last depends on your situation, including many factors listed above. But geography can also have an impact. That’s right, some locations in the US and the world are more expensive to live in than others. Midwest cities like Youngstown, Toledo, OH, and Ft. Wayne, Indiana, are among the most affordable metropolitan areas. Looking for warmer options? Try Brownsville, TX, or Mobile, AL. By region, the Midwest and South are the most affordable regions to retire, followed by the Southwest, Northeast, and West.

When Can You Retire With $2 Million?

If you are fortunate enough to have saved $2 million, congratulations! But the age you retire will determine whether or not this will be enough money to last until you pass away. Factors to consider:

Your Health – If you are very healthy and continue to live a healthy lifestyle, you could be in retirement for a long time, perhaps 30 years or more.

Income stream(s) –To sustain a comfortable retirement, you may have to depend on several income streams, including some, like income annuities and social security payments, that are “guaranteed.”

Boredom – Sometimes it’s a matter of “should you retire,” not “can you retire!” Will you be bored if you retire earlier than age 65 and don’t have hobbies, part-time/gig employment, or volunteer opportunities to keep you busy and productive?

Gig Work – Can you do part-time or “gig” work to supplement retirement income? How long are you able and willing to do this work?

Frugal = Longer Retirement – If you live frugally or put your money to work for you to get significant earnings out of your cash, it could last you even longer.

The reality is that if you have done your financial planning homework and collaborated with a financial planner to help you execute and monitor the plan, you should have enough money to live comfortably with a $2 million start!

Determining the Right Amount of Retirement Savings for You

So, is $2 million enough to sustain a comfortable, stress-free retirement?

That is a very personal question. To start, it’s a good idea to create a spreadsheet of current and anticipated expenses in retirement in categories such as healthcare, taxes, travel, groceries, alcohol, utilities, etc. From there, it becomes a math problem, ensuring that income can outpace these expenses.

Expenses

As we mentioned, determine where you will live and consider the cost of living in the town you want to live. Next, what lifestyle do you want to have? For instance, is there a trip or two to international destinations, more modest costs like a weekend or two at a beach resort, or travel costs to visit your children and grandchildren? And don’t forget one of the most significant possible expenses - healthcare.

Now, think about all of these costs from the perspective of when you want to retire and estimate them for the rest of your life, remembering that those costs will probably go up every year with inflation.

To help you better estimate your retirement expenses, there are also retirement calculators available.

Retirement Income

Once you have a pretty good idea regarding your expenses, it’s time to realistically estimate the amount of annual income you can generate from your retirement savings nest egg. How much will you earn in interest, dividends, or annuity income if you invest the money?

Setting up a part of your income budget as a foundation to cover everyday expenses is essential. Social security and other guaranteed income sources, including income annuities, can fill this need. Annuities are the only product that has a guaranteed income feature. It’s like creating a personal pension when no actual pension exists.

You can use our annuity calculator to help you understand how much you could earn from one of our fixed annuity products.

Determine your Retirement Savings Goal

Congratulations! At this point, you’ve done the hard work of realistically estimating all expenses and income you anticipate in retirement. Once you know your income and expenses, compare them to figure out how much money you'll need to retire comfortably.

For example, suppose you estimate your annual retirement costs to be about $80,000 a year, and you calculate that your investments, social security income, and annuity earnings will average about $60,000. In that case, you know you'll have to fill a gap of about $20,000 a year until you're 95, estimating you’ll spend 30 years in retirement.

$20,000 per year for 30 years is about $600,000. So you know you'll need at least $600,000 in savings to sustain yourself.

Preparing for Retirement

If you anticipate having $2 million on your retirement date, you have more options than most Americans. But even with that amount of money, planning for retirement can be daunting. Part of the stress comes from uncertainty—not knowing or sure how much money you'll need or how your expenses will change once you are retired.

To ease some of this uncertainty, you may consider annuities as part of the foundation of your retirement plan. They can pay you a guaranteed retirement income so you can be sure that no matter what happens, you'll be assured of a base amount of money coming in.

It’s a good idea to begin planning for retirement early, and engaging the services of a certified financial planner can help.

To learn more about how fixed annuities can provide peace of mind to your plan, consider an annuity from Canvas Annuities. Canvas offers high guaranteed annual rates of return and the ability to buy from a licensed agent right over the phone. We even have a simple DIY experience at www.canvasannuity.com.