A $1 million pot may once have been considered the benchmark for a comfortable retirement. But given rampant inflation and rising interest rates, is it really enough to support a saver through his twilight years?
The number of Americans with seven-figure amounts in their 401(K)s has increased 25 percent this year, according to an analysis by Fidelity.
Assuming someone retires at 65 – and has a life expectancy of 90 – that would only give them $40,000 a year to live on.
But figures from the Bureau of Labor Statistics suggest that the average U.S. citizen aged 65 and older actually spends $52,141 per year.
Certified financial planner Marissa Reale told , “$40,000 a year isn’t going to be enough to live on for most people.”
A stock market boom has increased the number of savers with $1 million in their 401(K)s by 25 percent this year, figures from Fidelity Investments show
Certified financial planner Marissa Reale told that a $1 million pot probably wouldn’t provide a comfortable retirement for most people
“I always advise my clients to invest some of their money in stocks.” So it’s not like you get the entire amount in cash.
“If you really want the money to last, most people will need more than $1 million.”
However, she points out that pensioners would receive a boost from social security contributions, which should also be taken into account.
According to GoBankingRates, the average Social Security payment is currently $1,800 per month – or $21,600 per year. It would increase the annual income of a $1 million saver to $61,600 per year. Social security contributions change according to the cost of living.
But many Americans fear that this government support will no longer be available – or at least significantly reduced – by the time they retire.
A survey by investment bank Natixis this week found that 77 percent of investors feared that high government debt would lead to cuts to social security.
To protect your retirement provision, Reale advocates the 4 percent rule. This means savers look at the lump sum amount of their retirement pot and assume they will spend 4 percent of that total each year.
To figure out how much you’ll need, she recommends households look at their living expenses and figure out how much they actually spend in a year.
This week, a report from Bank of America (BofA) sounded the alarm about the increasing number of workers taking “emergency withdrawals” from their 401(K)s
From there, they can multiply it by the number of years they expect to spend in retirement based on when they plan to leave work and their life expectancy.
But Paxton Driscoll of Florida Financial Advisors points out that retirees may want to spend more than usual when they finish working.
He told : “When you work, you go to an office every day and sit at a desk for hours – you don’t actually spend a lot of money.”
“But once you retire, every day is a Saturday. You’re probably spending a lot of money.’
To fund a 20-year retirement, Paxton adds that a household spending $120,000 a year would need $2.4 million in its pot.
He said: “The absolute worst-case scenario that everyone wants to avoid is having to go back to work after retirement.”
Both experts say one of the biggest problems retirees face is underestimating their life expectancy.
A 2021 study by investment firm Capital Ideas found that 43 percent of retirees underestimated their life expectancy by at least five years.
Experts continue to sound the alarm about America’s so-called “retirement crisis” as the rising cost of living makes it harder for workers to save enough money.
Earlier this year, a study by Northwestern Mutual found that the average worker had only $89,300 saved for retirement.
Compounding the problem is the fact that more and more workers are resorting to “hardship” to make ends meet. Figures from Bank of America show that the number of 401(K) plan participants withdrawing money from their retirement funds in the second quarter of the year increased 36 percent compared to a year ago.