In last week’s blog, I referenced a study that says more money = more retirement happiness up to $4,000,000. That seems like a huge goal, and truly, it’s not for everyone, but I thought I’d use that statistic to run some numbers.
First, what does $4,000,000 mean in terms of retirement income? See the table below for examples:
Assumption: You have $4,000,000 saved at retirement age.
| Your Age Today | Retirement Age/
Withdrawal Rate |
Income from Investments | Estimated Social Security Income | Inflation Adjusted Income at 2.2% |
| 40 | 65/4% | $160,000/year | $24,000/year | $106,000/year |
| 50 | 65/4% | $160,000/year | $24,000/year | $148,000/year |
| 40 | 55/3% | $120,000/year | $20,000/year | $101,000/year |
| 50 | 55/3% | $120,000/year | $20,000/year | $125,000/year |
Now, how much do you have to save to have $4,000,000 at age 65?
Assuming a 6.5% average annual rate of return.
| Your Age Today | Current Investments
(Totally made up – you are not expected to have this amount.) |
Annual Savings Needed to
have $4,000,000 at age 65 |
| 25 | $0 | $21,000/year |
| 35 | $200,000 | $29,000/year |
| 45 | $500,000 | $54,000/year |
| 55 | $1,000,000 | $147,000/year |
Is $4,000,000 the key to retirement happiness? Of course not. If you are used to spending $60,000/year, you don’t need a $4,000,000 nest egg. If you are used to spending $400,000/year, you need a much larger amount saved.
Want to find out your personal retirement nest egg goal and how to get there? Online calculators are a good start, but they lack context and can deliver scary results to even the best savers. Considering hiring a financial planner (me, anyone?) to create a personal plan.
