To some, retiring with $1 million in savings may seem like a resounding success. But does a nest egg of that size really mean you’ll be living out your retirement on easy street? As it turns out, not necessarily.

The good news is that if you have financial assets in the seven figures, you’re doing significantly better than most Americans. According to a survey conducted by the National Institute on Retirement Security, the average household just a few years away from retirement age has only $14,500 put away. That figure jumps to $104,000 for those ages 55 to 64 with retirement accounts, but it’s still far from $1 million. 

Now for the sobering part: In today’s low-interest–rate environment, your assets won’t last nearly as long as they once did.

The 4% Rule, Amended

Prior to the Great Recession, it was common to hear financial advisors talk about the “4% rule” when discussing retirement account withdrawals. Older adults, they said, could take out 4% of their nest egg in the first year after leaving their job. They could repeat that amount in each subsequent year –  adding a modest increase for inflation – with a reasonable belief that they wouldn’t outlive their money.

But now bonds, the cornerstone of many retirement accounts, are paying so little that account balances aren’t seeing as much growth. In fact, Wade Pfau, an economist at the American College for Financial Services, estimates that a present-day portfolio with an even mix of stocks and bonds will generate an inflation-adjusted return of less than half the historic norm. 

Now, retirement experts like Pfau are citing a “3% rule” for retiree withdrawals. That can have a significant impact in terms of one’s standard of living. (See also: Why the 4% Rule No Longer Works for Retirees.)

The Interest-Rate Effect

As an example, let’s look at a recently retired couple with a combined savings of $1 million. Suppose each spouse earned $75,000 a year during their working years, resulting in a combined household income of $150,000. Were they to take out 4% of their assets in the first year, they’d be able to withdraw $40,000. But by dropping that allowance down to 3%, they’d limit themselves to $30,000.

Of course, they can add to that amount any income they receive from pensions, as well as their Social Security benefit. According to the Social Security Administration, our example couple would qualify for annual payments of just over $40,000. So, barring any pension revenue, they’re looking at roughly $70,000 to live on. In this case, that’s not close to the 70% or 80% of pre-retirement wages that a lot of financial planners point to as a target.

Now, what if this same couple had saved twice, or even three times, that much? Suddenly, their future looks more comfortable. A 3% dip into a $2 million retirement savings generates a $60,000 source of income in their first year out of the workforce. Add to that the approximately $40,000 they’d receive in Social Security. They now have $100,000 annually.

A $3 million nest egg puts them in even better shape. Here, they can comfortably withdraw $90,000 a year when they retire, adjusting that amount in each following year to keep up with inflation. That, with Social Security, brings them past the $130,000 mark, close to the income they received during their working years.

The Importance of Budgeting

Does that mean everyone will need $3 million to enjoy a stress-free retirement? Well, no. There are a lot of variables at play, which is why the aim of bringing in 70% to 80% of what you made as a full-time employee is just a rule of thumb.

One factor that has a huge influence is where you’ve socked away your money. If you put most of your money into a tax-exempt Roth account, for example, you may be able to live off significantly less. Since none of the money you pull from these accounts is going to the IRS (assuming you comply with Roth withdrawal rules), each dollar you pull out is worth more than it would be in a taxable, or even a tax-deferred, vehicle. (See also: What Are the Roth 401(k) Withdrawal Rules?)

Your lifestyle in retirement will also have a big impact. Are you planning to do extensive traveling or to join a pricey country club? If so, you might need to increase your target retirement income. But if you intend to downsize your home and pursue more thrifty pursuits, you might be able to live off substantially less than you once did.

To come up with an accurate picture of how much you’ll need in retirement, a detailed budget is absolutely essential. A good financial advisor should be able to help you determine the likelihood that your portfolio will be able to support your lifestyle choices. (See also: The 4 Phases of Retirement and How to Budget for Them.)

Handling Long-Term Health Care

Another point to bear in mind is that your health could significantly affect your cost of living later in life. This is where retiring with just enough to scrape by can be a risky proposition.

Research by Genworth Financial concludes that the average cost for those in assisted living facilities is now $43,539 a year. And that number goes up considerably if you require the more elaborate care that a nursing home provides. There, even a semi-private room now averages $82,125 a year. 

While not everyone will end up at one of these facilities, many Americans take out long-term care insurance just to be safe. The problem is that this protection can be enormously expensive in its own right. A typical 65-year-old will have to pay more than $3,000 a year for $276,000 of coverage, according to the American Association for Long-Term Care Insurance. 

But if you retire with more money than you immediately need, you might be able to forgo this extra expense. By saving extra for retirement, you can essentially self-insure and tap that money only if it’s actually needed.

The Bottom Line

Having $1 million saved up by the time you retire may seem like a lot. But when you consider how long it may have to last you and the fact that today's low interest rates are dragging down investment returns, a more sober picture emerges. Depending on how you plan to spend your later years, it may take $2 million or even $3 million to make your ideal lifestyle a reality.