Do You Need a Million Dollars to Retire?

Your retirement is going to last decades, not years. With dollars not stretching as far as they used to, there’s a lot of rumors out there about how much you’ll need in order to retire. Can you retire with less than $1 million saved up? I’ll tell you coming up.

The statistics say there are over 11 million millionaires in the US, and that’s on the rise.  Additionally, I found this interesting…it takes the average millionaire 28 years to reach that level, so the typical millionaire gets there by consistently saving over a long period of time.

My question today is do you need to be a millionaire in order to retire?

If I’m being honest, as a certified financial planner, whose helped thousands of people with their financial goals and figuring out how to retire, I’ve never viewed it as a certain threshold of savings you needed to accumulate.  I realized very early in my career that the answer depends on your unique situation, what we call the 5 factors of your retirement.

Let me tell you about Dave.  Dave came in to see me back in the late 2000’s, was referred to my by a friend of his.  He was 63, single, and had about $150k saved up.  He was hoping to retire around 66 or 67.

If I stopped there what would you think…is he on track to retire?  The truth is, today, he’s been retired for over 5 years now without a financial care in the world.  How?

Because being able to retire isn’t just about how much money you have saved up, it’s about 5 interrelated, interdependent variables, or choices really, that you make in your financial life.  Yes, how much you have saved up in your nest egg is one of those variables, but it’s one of the 5, and I would argue isn’t even the important one.

Before I tell you more let me tell you about Sue.  Sue was also referred to me from a friend of hers, just about the same time I started working with Dave.  Sue was single, was 62 and was planning on retiring with a year or so.  Sue had $1.3m saved up.

Let me stop again, given those variables, would you say Sue was on track to retire.  Would you be surprised if I told you no, that she wasn’t ready to retire?

The moral of the story is that you can retire on virtually any amount of money saved up, depending on how the 5 variables, the 5 factors retirement, how they fit together for your situation.  The amount you have saved up is one of those, but I’ve seen people retire with next to nothing in the bank, and I’ve seen people retire and fail with a couple million saved up.

If you haven’t heard me talk about this before, let me explain what these 5 factors are.  They are 5 questions that I review with clients, and they are really choices that each person gets to make or has already made that work together interdependently to determine their ability to retire.  And by interdependently I mean that if you make a choice in one area, it will influence your choices in another.

Here are the 5 factors: 1) How long will your retirement last, meaning what age will you retire and what is your life expectancy, 2) How much will you spend per year in retirement, 3) What income sources will you have during retirement, 4) How much do you have saved up and how much will you continue to save up between now and retirement, and 5) how much investment risk are you comfortable taking.

I think emotionally we get so fixated on that 4th variable, how much you have in savings, that it feels like that’s it, that’s the crux of your retirement readiness, and it’s not…at least not by itself.

See Dave, who retired successfully with only $150k, he didn’t like investment risk at all, meaning he couldn’t plan on that $150k growing much for him.  That’s bad news.  What was his saving grace?  He didn’t spend much money at all, and was very content.  In fact he said he only spent money on beer and nightcrawlers, and he said neither were very expensive!  And because he worked until 67, he had a good amount of Social Security income, and very affordable health insurance via Medicare.

By contrast, Sue still had a mortgage, a car loan, a timeshare she was paying off, and a daughter still at home that she supported.  And because Sue wanted to retire before her full SS age and before Medicare kicked in, both of those were going to be a big drag on the money she had saved up for retirement.

The point is this…I’m not telling you that you need to be Dave in order to retire, and I’m not telling you that you can’t retire early like Sue.  The amount of money you have saved up is crucial to your retirement readiness, but it’s not the only variable.  You need to make those 5 choices for yourself and see how they fit together to determine if you’re on track to retire, or whether you need to make some tradeoffs.  So do that work, contact your certified financial planner, they’ve got to be doing comprehensive financial planning, not just trying to sell you something, contact them and go through your specific, unique answers to your 5 factors.

I hope that helps you on your journey towards financial freedom…if you have any comments leave them below, tell me about your journey, what your experience has been…hit that thumbs up button, and do me a favor, if you’re not a subscriber please do so so that you’re up to date on all wise money content we publish to the Wise Money channel.

Alright, until next time, my name is Mike Bernard, now go out and take your next wise step in your financial life.