If Bob (35) and Patty (35) retire in 30 years with $1,000,000 in investments, they will be struggling. That wasn’t a typo – they will have a difficult retirement worrying how to make ends meet.

The media touts headlines made to garner page views:

“Fool proof ways to Retire With a Million Dollars”

“4 Simple Steps to a $1 Million Retirement Nest Egg”

$1,000,000 just wont cut it!

Bob and Patty each earn $60,000 a year – total household income of $120,000. At retirement, 30 years from now, inflation will reduce their spending power and they will need more money to purchase the same things they can now.

Inflation data from the past 100 years averages out to just over 3.22% per year. So in 30 years, they will need to earn $314,882 per year to be at the same social status and spending habits as they are now. This is almost like the $342,220.00 Ford Mustang.

If they play their cards right for retirement, Bob and Patty will be prepared by completing the following goals:

• Pay off their mortgage
• Pay off all debts
• Have a plan on how to claim Social Security
• Have a plan on how to draw from investments to ensure they won’t run out

They will no longer be spending money on a mortgage/debts, or allocating any to their savings account. Therefore, we can assume they will only need 80% of their current income to live. 80% ends up being $251,905.

Now, IF (seriously, IF) Social Security is still as robust and compounded at the same 3.22% rate, their current total yearly benefit of $50,000 for the two of them could possibly provide $131,200 of income.

They still need $120,705 of income to fill the gap.

With $1,000,000 invested and earning an estimated average of 7%, they will run out of money in 13 years by taking $120,705 per year.

$1M becomes $zero in just 13 years.

$1,000,000 doesn’t cut it! So what will? If they have $3,000,000, they will be drawing 4% of their money the first year.

Why wouldn’t they take the full 7% the money is growing? Because inflation doesn’t stop in retirement. The money that grows above the 4% they take (3%) allows them to take out a larger sum of money each year to account for things getting more expensive in their 30+ years of retirement. They will almost fully have inflation adjusted income.

If $3 Million sounds a lot more daunting than a Million, you’re right. If you have the right plan, the right investments, and someone holding you accountable, then your retirement will be comfortable. In the same way we make sure you don’t leave $400K on the table, work with us to ensure you’re not filled with doubt, worry and confusion when your time to retire comes.

By Martin Konsor

Woodfield Financial Advisors