$1 Million Isn’t Enough, Americans Think Your Retirement Nest Egg Needs To Be Much Bigger
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Planning for retirement is not as easy as it might seem. There are numerous things that must be accounted for when you’re trying to determine the amount of money you need for your retirement nest egg. Things like your withdrawal rate, anticipated medical costs and how inflation is going to effect your net worth. Not to mention what kind of lifestyle you want. Is $1,000,000 enough to get you a comfortable retirement? Unless you’re living in an inexpensive part of America, probably not.
Inflation’s Effect On Your Net Worth
How powerful is inflation? Even when inflation is only 3%, how bad could that be, you say? Well, some quick math can show you just how painful inflation can be on your nest egg. Assuming you have $1 million today and a 3% inflation, this is how much buying power your $1 million will have in 20, 30 and 40 years.
20 years: $1m today will only be worth about $560,000
30 years: $1m today will only be worth about $410,000
40 years: $1m today will only be worth about $310,000
Still think $1 million is enough money to last forever? Maybe if you live in one of the states where you need less than $1 million to retire. However, that number already doesn’t make sense in a lot of states and inflation is only going to make it worse.
So How Big Should Your Retirement Nest Egg Be?
One thing to keep in mind is that everyone’s freedom number isn’t the same. Retirement planning isn’t a one-size fits all strategy. What might work for one person, could be a terrible idea for someone else. Inflation is only one (kind of big) factor in all of this.
When Retirees think about their savings and nest egg for retirement, they also need to factor in spending habits, costs of living, geographical location, passive income sources, travel plans, health, and how many mouths they have to feed. The inputs can be overwhelming. And it is vital to remember that while $1.9 million is a lot of money, it’s not the end-all-be-all as it pertains to your personal financial freedom.
Even if you want to work for the next 20 or 30 or 40 years, it is never too early to start planning for your retirement. There are a ton of resources that people of all ages should be referencing when it comes to preparing for retirement. Here are a few that can get you started.