“Just tell me the number.”
It’s probably the most common retirement question we hear.
“How much money do I need before I can retire?”
Some people have heard it’s $1 million. Others have heard $2 million. Some articles say you need 25 times your annual spending. Others tell you to save enough to withdraw 4% per year.
It would be so nice if there was a univeral number we could target, wouldn’t it? But the truth is, there isn’t a magic number.
We’ve worked with retirees who comfortably retired on less than $800,000 and others with several million dollars who still worried every month about running out of money.
The difference wasn’t simply how much they had saved. It was how all the pieces fit together.
The Better Question
Instead of asking:
“How much money do I need?”
Try asking:
“How much income will I need, where will it come from, and will it last?”
That sounds sort of similar, but it’s actually a very different conversation. Retirement is less about having a giant investment account and more about creating a paycheck that lasts as long as you do!
Your Lifestyle Matters More Than Someone Else’s Number
Before you retire, most people start talking with friends, comparing notes. You have a lot of things in common with your friends, but your spending habits and income needs might be more different than you think.
Imagine two couples.
Both retire at age 65.
Both have exactly $1.8 million invested.
Couple A owns their home outright, drives paid-off vehicles, enjoys gardening, visits grandchildren, and spends about $75,000 per year.
Couple B carries a mortgage, owns a lake cabin, enjoys international travel, and spends $180,000 per year.
Same investments.
Very different retirements.
This is why comparing yourself to your friends doesn’t usually work very well. You have to make sure that your retirement is built around how YOU want to live, and not how your friends are doing it.
Your Investments Aren’t Your Only Source of Income
Your investments probably won’t have to do all of the work. Most retirees receive income from several different places:
- Social Security
- Investment accounts
- IRAs and 401(k)s
- Roth IRAs
- Pensions
- Rental income
- Farm income
- Part-time work
- Business income
Beyond accumulating assets, we have to coordinate these income sources so that they work together in an efficient way.
Taxes Matter More Than Most People Realize
Believe it or not, two retirees with identical investment balances can pay dramatically different amounts in taxes.
How much money you have matters, but where you hold those assets matters a lot too.
Traditional IRAs create taxable income. Roth IRAs generally don’t. Brokerage accounts are taxed differently.
Social Security may or may not be taxable depending on your overall income.
Your withdrawal strategy (where and when you withdrawal from) can make a big difference in how far your retirement dollars will take you.
Inflation Doesn’t Retire When You Do
Remember how much you budgeted for groceries 20 years ago? Or how much you paid for your first house?
We’ve all felt the effects of inflation, and unfortunately it doesn’t stop in retirement. Even modest inflation increases the cost of almost everything. And when you consider that retirement will likely last 20 or 30 years, inflation is one of the sneakiest and perhaps one of the biggest threats to retirement.
Your retirement plan has got to account for those rising costs.
Healthcare Is Often the Wild Card
Healthcare is one of the largest unknowns in retirement. Medicare and a good supplemental plan cover a lot, but not quite everything.
You still have to consider the costs of prescriptions, long-term care, dental, vision, and other out-of-pocket expenses.
These aren’t reasons to fear retirement, but they are reasons to plan carefully.
Retirement Isn’t Just About Running Out of Money
For most people (regardless of the size of their portfolio), their greatest fear in retirement is running out of money. And sometimes that fear is so great, that they create the OPPOSITE problem.
We’ve met retirees who spent forty years pinching pennies and saving all they can, but when they get to retirement they feel so afraid of running out of money that they never enjoy the retirement they worked so hard to build. In fact, it’s probably the most common thing we see.
Money is a tool.
Its job isn’t just to become the largest possible account balance.
Its job is to support the life you want to live… to help you actually do your “someday” list.
Sometimes the biggest planning challenge isn’t helping someone spend less. It’s helping them feel confident enough to spend what they already have.
What About the 4% Rule?
You may have heard of the 4% Rule.
It’s a general guideline that suggests retirees should be able to withdraw approximately 4% of their portfolio annually with a reasonable chance of their savings lasting 30 years.
That is a super helpful starting point. But in real life it isn’t usually quite that simple.
Often retirees spend more early in retirement – while their health and energy allow them to do more things.
Others actually spend less.
Markets don’t deliver average returns every year.
Tax laws change.
Health changes.
Family circumstances change.
So your retirement plan usually needs to be adaptable.
So…How Much Do You Really Need?
The honest answer is:
Enough to support the life you want to live.
For one family that might be $900,000.
For another it might be $4 million.
The number itself isn’t nearly as important as understanding:
- How much you’ll spend.
- Where your income will come from.
- How taxes will affect you.
- When to claim Social Security.
- How inflation impacts your plan.
- How long your money is likely to last.
- What legacy you hope to leave.
Those questions (not a single dollar amount) determine how large your portfolio needs to be to retire comfortably.
The Bottom Line
It would be simplest if there was a single magic retirement number that applied to everyone. But retirement planning isn’t about chasing a magic number. It’s about creating confidence.
At Impact Wealth Management, financial planning can’t predict the future, but it can help you prepare for it. Markets will change. Tax laws will change. Life will change. Your plan should be flexible enough to change with it.
If you’re wondering whether you’re truly ready to retire or simply hoping you are, we’d be happy to help you look beyond the account balance and build a plan around the life you want to live.
Frequently Asked Questions
Can I retire with $1 million?
Maybe. For some families, $1 million is more than enough. For others, it may not be enough at all. The answer depends on your annual spending, other sources of income (such as Social Security or a pension), taxes, healthcare costs, and how long you expect your retirement to last. Rather than focusing on reaching a specific number, it’s more helpful to understand whether your savings can reliably support the lifestyle you want.
How much annual income will I need in retirement?
Many retirees find they need between 70% and 90% of their pre-retirement income, but there is no universal rule. Some expenses (like commuting or retirement savings) often decrease, while others (like travel or healthcare) may actually increase. Building a retirement budget based on your own goals is far more accurate than relying on a percentage.
What is the 4% Rule?
The 4% Rule is a guideline suggesting that retirees may be able to withdraw about 4% of their investment portfolio in the first year of retirement and adjust that amount for inflation each year thereafter. While it’s a helpful starting point, it doesn’t account for taxes, changing market conditions, healthcare costs, or your unique financial goals. Most retirees benefit from a more flexible withdrawal strategy.
Should I wait until age 70 to take Social Security?
Not necessarily. Waiting until age 70 provides the largest monthly benefit for many people, but it’s not always the best decision. Your health, life expectancy, marital status, other retirement income, taxes, and legacy goals all play a role. The right claiming strategy is different for every family.
How do taxes affect retirement income?
Taxes can significantly impact how long your retirement savings last. Withdrawals from traditional IRAs and 401(k)s are generally taxable, while qualified Roth IRA withdrawals are typically tax-free. Social Security benefits may also be partially taxable depending on your income. A thoughtful withdrawal strategy can often reduce lifetime taxes and help your savings last longer.
When should I start planning for retirement?
The earlier, the better but it’s never too late to make improvements. Whether you’re ten years from retirement or already retired, reviewing your income strategy, investment allocation, taxes, estate plan, and healthcare costs can help increase your confidence and identify opportunities you may have overlooked.
What does a retirement plan include?
A comprehensive retirement plan goes far beyond investments. It should coordinate your retirement income, Social Security strategy, tax planning, investment allocation, healthcare planning, estate planning, insurance coverage, and legacy goals. Each piece affects the others, which is why it’s important to look at the entire picture rather than making decisions in isolation.
Our attorneys want us to remind you:
This article is provided for informational and educational purposes only and should not be construed as personalized investment, tax, legal, or financial planning advice. Every individual’s financial situation is unique, and the strategies discussed may not be appropriate for everyone.
Examples and scenarios are hypothetical and are intended solely to illustrate financial planning concepts. They do not represent the experience of any specific client or guarantee future results.
Investment advisory services are offered through Impact Wealth Management, a registered investment adviser. Registration does not imply a certain level of skill or training. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.
Before making financial, investment, tax, or estate planning decisions, consult with your financial advisor and other qualified professionals regarding your individual circumstances.