We all know that $1 million isn’t what it used to be.
Still, it’s a nice, round number–a savings goal worth striving for.
As the cost of living has risen over the last several years, our office is seeing more financial plans look shaky with “just” a $1 million nest egg.
Overall, the value of a million bucks fell 32 percent in the last decade. It now costs $1 million to buy what $753,000 would have paid for ten years ago.1
Certain big-ticket items cost nearly 50 percent more than a decade ago.
While most retirees aren’t buying a home, they do need new vehicles every so often. According to Car and Driver magazine, the cost of a popular pickup model has risen 47 percent since 2015–to almost $40,000.
Retirement savings, meanwhile, haven’t kept up with the pressure on families’ wallets.
A few years ago, we saw reasonably frugal individuals plan to retire on a $5,000 monthly budget. It’s still doable in a less expensive area with careful budgeting, Social Security or pensions, and some creativity.
$1 million case study
Your savings will go further if your expenses are lower. The higher expense associated with an upper-middle-class lifestyle require larger nest eggs–which are in short supply!
Here’s a hypothetical example of a financial plan that looks pretty good at $1 million.
Meet Jake, who just retired at 62 from his career at a defense contractor. He’s divorced and lives in Texas. For fun, Jake drives his new pickup truck to nearby casinos on the occasional weekend and volunteers for his county’s Meals on Wheels program. He stays active on group bike rides and recreational league sports teams.
Jake retired with $1,000,000 saved in pre-tax retirement accounts. He spends about $60,000 a year and has no debt.
We don’t have a crystal ball, but our modeling shows his plan works pretty well, with a few tweaks to his investments.
Jake builds his cash position and decides to wait on Social Security, planning to cover the next five years out of his portfolio.
While his withdrawals in the early years are sizable, we plan to get them back down once he signs up for Social Security.
We model a few major expenses to see how the plan holds up. Plus, Jake owns a home, which he could sell to free up cash should he need it as he ages.
This is a hypothetical example and is not representative of any specific investment. Your results may vary.
A solid plan to start
One of the most important benefits to a modest budget with healthy savings is flexibility if (or WHEN!) life changes. A robust plan as you start retirement allows for more tactical adjustments rather than desperate or radical measures later on.
Of course, all this is theoretical. “Jake” is still 62 and on the cusp of what everyone hopes is a multi-decade journey. He may have lots of adventures and life changes yet to come. He may become a grandparent, get remarried, decide to move, go back to work part-time, or develop a serious health condition.
It’s best to keep your financial team–including financial planner, attorney, and accountant–in the loop as changes come your way!
This is one example of a million-dollar financial plan for a single individual. Plans with more income streams, more participants, greater or fewer resources, and extra risk factors present both more challenges and opportunities.
If you would like to discuss your retirement strategy, please schedule a call today!
- Source: “What is a Dollar Worth?” calculator maintained by the Federal Reserve Bank of Minneapolis. Decade 2014 to 2024.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.