Financial experts warn that saving up just $1 million for retirement may not be enough for several reasons. Financial planner Mark Avallone explained that $1 million is just a fraction what a retiree will need.
A baby boomer that has $1 million in his retirement nest egg right now will be able to survive on $40,000 annually with a withdrawal rate of 4%. However, the younger generations will be less fortunate, Avallone said.
- For instance, a Gen X-er whose goal is to save $1 million for retirement will have just $19,000 to spend per year after the money is adjusted for inflation.
- A millennial that is working towards the $1 million retirement goal, which is to be achieved at age 67, will live under the poverty line.
In other words, ironically, younger people will face a so-called “million-dollar poverty” if they don’t beef up their retirement nest eggs.
Experts noted that there is a toxic mix of poor financial literacy, lack of planning, and longer life expectancy. So, don’t expect a successful retirement unless you plan things properly.
Stretching the Retirement Dollar
Avallone noted that pensions are almost a thing of the past so people need to self-fund for the golden years. However, not everyone is up to the challenge.
According to GoBankingRates, $1 million will not last you long when you subtract utilities, food, housing, health care and transportation. What’s more, some states are more expensive than others.
In Arkansas, Mississippi, and Tennessee, a retiree with $1 million on his hand could live without deprivations for more than 25 years. In Hawaii, though, the same money will last for a dozen years or less because of high housing costs and cost of living.
When you take into account that most American families burn through their entire income or more on a monthly basis, you’ll only be able to fend off poverty by spending less or earning more.
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