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Can you retire with $1 million dollars? Of course you can. Truth be told, you might be able to retire with much less. Then again, you might not be able to retire with $1 million or $2 million or perhaps even $10 million. It all depends on your personal situation. One thing is certain: you want to make sure your retirement years are not merely a struggle for existence.

Many advisors and financial professionals boil it down to one number, also known as the holy grail of retirement analysis: the 4% sustainable withdrawal rate. Essentially, this is the amount you can withdraw through thick and thin and still expect your portfolio to last at least 30 years, if not longer. This should help determine how long your retirement savings will last, and will help you determine how much money you need for the retirement you want. Of course, not everyone agrees that this withdrawal rate is sustainable in today's financial environment.

So, Can I Retire With $1 Million?

If you are 65 with $1 million, you can expect your portfolio of properly diversified investments to provide $40,000 per year (in today's dollars ) until you are 95. Add that to your Social Security income and you should be bringing in roughly $70,000 a year.

Now, if this isn't enough for you to maintain the lifestyle you want, you have come to your unfortunate answer rather quickly: No, you cannot retire with $1 million.

Now wait a minute, you say, what about my spouse, who is also getting Social Security? What if I'm 75, not 65? What if I want to die broke? What if I'm getting a government pension and benefits? What if I'm planning to retire in Costa Rica? There are many "what ifs," but the math is still the math: if you plan on needing a lot more than $40,000 from your retirement nest egg, then the probability of a successful retirement on $1 million is not good.

Projecting Future Expenses

Many books and articles discuss longevity risks, sequence of returns, healthcare costs and debt. But knowing how much you need to retire still boils down to projecting your future expenses until the day you die. Ideally, that yearly figure will add up to less than 4% of your nest egg.

"Having a firm grasp on your living expenses is critical to retirement success. It is far better to understand your situation when you can be proactive and make adjustments, rather than waiting for a crisis to erupt and being forced into action. As it is said, 'an ounce of precaution beats a pound of cure,'" says Jack Brkich III, CFP®, founder of JMB Financial Managers, Inc., in Irvine, Calif.

So a $1 million dollar portfolio should give you, at most, $40,000 to budget. If you are forced to take out more than $40,000 adjusted for time during your retirement, you are tempting fate and relying on luck to get you by. So, if you want at least $40,000 per year, $1 million is really the least amount of money, the bare minimum, you should have before you launch into retirement.

"People do not plan properly for income in retirement because they don’t really think about Social Security properly, they compartmentalize their assets, they don’t think about how everything they own can create income, they fail to appreciate the power of leverage in retirement. It is not especially risky to have just $1 million in retirement assets if you own things that can be turned into retirement income," says Tracy Ann Miller, CFP®, CEO and chief portfolio officer, Portfolio Wealth Advisors, Oklahoma City, Okla.

Retirement planning means maximizing your lifestyle while maintaining a high probability of being able to maintain that lifestyle until the day you die. So scraping together a bare minimum nest egg is like an explorer heading into the jungle for a week with just enough supplies. What if something happens? Why not take extra?

Three Types Of Retirees

Typically, we see three categories of people trying to decide if they are ready to retire:

  1. "Of course you can retire! Live it up and enjoy!" If you are at least in your 70s with reasonable expenses, there is a good chance you and your $1 million fall in this category.
  2. "The probability for your retirement looks good. Just don't go crazy and buy a Porsche." If you are at least 62 and have always lived a frugal lifestyle, then you and your $1 million are likely going to fall in this category.
  3. "Let's redefine retirement for you." This is just about everyone else, including early retirees with $1 million living frugally and 70-year-olds with $1 million spending lavishly.

Early retirement, meaning before Social Security and Medicare kick in, with only $1 million is extremely risky. You leave yourself with so few options if things go terribly wrong. Sure, you can go to Costa Rica and eat fish tacos every day. But what if you want to move back to the U.S.? What if you want to change? Having more money set aside will provide you with more flexibility and increase the likelihood of continued financial independence to do what you want within reason until the day you die. If you are forced to stay in Costa Rica or get a job, then you didn't make a good decision and plan.

"If you’ve only saved $1 million and are withdrawing 4% or more in retirement, you are most likely tempted to expose your accounts to more risk to make up for the lack of savings. With more exposure to a volatile market, there is a greater chance your retirement accounts will incur substantial losses during market corrections," says Carlos Dias Jr., wealth manager, Excel Tax & Wealth Group, Lake Mary, Fla.

So, once you have your $1 million, concentrate on what you can control or, at least, influence. You can't control when you die but you can affect your health costs by doing your best to stay healthy until you qualify for Medicare. You can't control investment returns but you can affect the range of returns. You can't control inflation but you can affect your fixed costs and your variable costs.

Spending and Expenses

A few quick bits on expenses and spending. To a certain extent, retirement planning is the art of accurately matching future income with expenses. People seem to ignore certain expenses. For example, family vacations and a grandchild's wedding gift count the same as dental surgery and car repairs in retirement planning, but people neither include these enjoyable expenses when they are projecting their costs nor do they recognize how hard it is to cut them. Try telling one child that you can't help with his wedding after paying for your other children's weddings!

"Often pre-retirees credit themselves with more control over spending than is realistic. Life’s wants quickly become needs. Rather than despair over spending more than you predicted, I suggest saving more to provide a reserve for these and other unforeseen contingencies," says Elyse Foster, CFP®, founder of Harbor Financial Group in Boulder, Colo.

The Bottom Line

Just getting by isn't a good way to start 30-plus years of unemployment and diminishing employability. If something unexpected happens, what are your options? Re-enter the workforce, change your lifestyle or get more aggressive with your investments? Most people try the last option and pray. Some get lucky, but most don't. This is the equivalent of doubling down in blackjack.

"Retirement should be a change of occupation, a chance to do what you want to do. We all only have so much time to do something until our bodies fail us and we can do less and less," says Wes Shannon, CFP®, founder of SJK Financial Planning, LLC, in Hurst, Texas.

If you want to retire with $1 million, it is going to come down to a combination of: 1) how you define retirement; 2) your personal inventory of everything in your life, such as assets, debts, medical, family; and 3) what the future holds.

Remember, stuff happens in life. Do you really want to start this 30-plus year adventure with the bare minimum? Like most good things, retirement is much better when you are over-prepared than when you wing it. You can retire with $1 million dollars, but it's better to be safe than sorry – shoot for $2 million!

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