Is $1 Million Enough to Retire On?
The average American expects to need $1 million in retirement savings to feel financially secure,according to a 2015 survey by the Transamerica Center for Retirement Studies. But while $1 million can certainly go a long way in retirement, it's not necessarily enough for everyone.
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What will your retirement costs look like?
Because everybody's retirement needs and goals are different, there is no one-size-fits-all retirement savings formula. It's easy to point to $1 million as a figure that should be enough to sustain most Americans in theory, but in practice, that just doesn't work. There are numerous factors, from housing to healthcare to transportation, that dictate how much money an individual needs to spend right off the bat. There's also the concept of leisure in retirement -- an expense that needs to be factored in
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Advertisement Warren Buffett Tells You How to Turn $40 Into $10 Million LeBron James: The Next Warren Buffett? Social Security: 3 Things to Know Before Taking Benefits Early 3 Social Security Secrets You Probably Don't Know Some of your living costs in retirement may be harder to predict than others. Housing is one of those: even if you've paid off your home and expect to stay put during retirement, you still have property taxes, homeowners insurance, and maintenance costs that could go up.Healthcare can be a similar gamble Without a crystal ball, estimating your retirement expenses boils down to guesswork, especially if you're decades away. But if you really want to know how well $1 million will serve you, you can start by weighing your current earnings against the4% rule You can use the 4% rule to estimate your retirement savings target by taking the amount of income you expect to need each year and multiplying that figure by 25. So let's say your current income is $50,000. Most people require 70% to 80% of their pre-retirement income once they're no longer working, and if we stick to the high end, that gives us a $40,000-a-year income need. If you multiply $40,000 by 25, you'll arrive at $1 million. Now there are additional factors to consider when estimating your retirement savings needs -- such as Social Security. But like your anticipated retirement expenses, Social Security can be hard to predict, especially if you're younger. While you can visit the Social Security Administration's website to get a rough idea of what your retirement benefits will be, your ultimate lifetime earnings average and the status of the Social Security trust fundsome money from Social Security, you're better off assuming that the majority of your retirement income will need to come from savings. Another factor to consider when you calculate your income needs in retirement is inflation Let's say inflation rises 2% a year. In that case, a $100 purchase this year might cost you $102 next year. Over time, those differences can really add up. According to a study by the Senior Citizens League, seniors have lost roughly 31% of their buying power since 2000, largely due to inflation and Social Security's inability to keep up. So while $1 million might seem like a lot of money now, it may not buy you nearly as much 20 or 30 years in the future. Though aiming to save $1 million for retirement is a respectable goal, the harsh reality is that depending on your circumstances and needs, it may not be enough to sustain your lifestyle once you're no longer working. So rather than fixate on that $1 million figure, aim to save as much as you can as early as you can, and invest that money wisely. With any luck, you'll amass enough to fund the retirement you've always imagined. The $15,834 Social Security bonus most retirees completely overlook Try any of our Foolish newsletter services free for 30 daysconsidering a diverse range of insightsdisclosure policyThe 4% rule
What will $1 million buy you in retirement?
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies.