Is $1,000,000 Still Enough To Retire?

Brought to you by the EveryDollar app. Start budgeting for free today. This question comes from Thomas in Colorado. He says, I'm struggling to know how much we actually need to retire. I'm 54 and currently have 1.4 million and a 401k, which sounds like a lot to me, but I don't actually know how fast we'll burn through that. What's the best way to know how much I'll actually need? So I'm thinking about your, the goal, you don't want to burn through your nest egg, right? You want to have it invested in such a way that you're able to live off of the interest and not really touch the nest egg is what I would say. So that would be my first thought is I would use a calculator and kind of run this back and go, okay, what is, what's the income that I think I'm going to need and get that number. And then, okay, what does the draw off of my interest need to be? What does my nest egg need to be so that my draw can equal that? So I'm kind of reverse engineering it in that way. And then there's also the part of this, you know, you're 54. I'm thinking, okay, you've got 1.4 million now. There's a good chance that in seven years it could double and that ain't bad. Yeah. If you've got it invested at 10% or better, it doubles every seven years. Yeah. 10% or better. So at 61, if you're invested in good mutual funds, you're going to have a 2.8. And at 68, you know, you're going to have five and a half million dollars. Now there is inflation to play into that. No, I'm just talking about, I'm not talking about inflation. Just actual dollars. I'm just saying that if you're, if you're making 10%, it doubles every seven years. A lump sum does. That's if you're adding nothing to it. Okay. So at 68, that's what you would have if you don't touch this. Now, if you got to retirement and all you had was 1.4 million, then the way you, how would you calculate if that's enough? Just like Jade said, there's a couple of factors. There's inflation that you want to stay away from and you need to look at your rate of return. So if you're invested in good growth stock mutual funds that are averaging what the stock market has averaged, the stock market has averaged 11.8% since it began, the standard and poor. Okay. So let's just pretend you're making 11%. We'll round down for the people that go bananas when I start talking about this stuff. All right. So we're going to round down. You're making 11%. All right. If you left three in there, that would, so that it would grow a little bit to cover some inflation and pulled off eight. Uh, that means you'd be living on $90,000 a year, 8% of 1.4 with no debt. Yeah. And so can you do that? That's the question. And if you can do that in today's dollars, you can do that in tomorrow's dollars, because if you leave this alone, cause it will have grown that much more. That's right. All right. And so if you did that, the account is growing by 3% a year. If it averages an 11% rate of return. Also a good point. So you're still getting money. Never burns up. It runs in perpetuation. It's a perpetual motion machine. And this is another good time to bring in why we think it's in teach that it's so important to be debt-free with a paid for home at retirement, because you don't need to have bills. You don't need as much money to live on. Yeah. And then that keeps you from doing this, but let's say you start stepping on it. Okay. And you step on the principal, a hundred thousand dollars a year. You got a 14 year burn rate. So from when are we going to start that at 70, that takes you to 84. So you're not going to run out of money. If you just, if you look at your burn rate on your principal as well. So you're going to be fine. You've done a great job. Now the trick is what I would suggest is we keep earning a living and leave this money alone and let's let it double a couple more times before we start. Then, then you can pull off, you know, $200,000 a year. That's right. You're sitting on 5 million instead of 1 million. It's a whole different equation, dude. And so, and again, good growth stock mutual funds. We suggest, I split my personal 401k, Jade does too, among four types, growth, growth and income, aggressive growth and international. And over the last 30 years, my little portfolio of that has averaged over 12, most years over 13%. Wow, Dave, that's great. But I mean, it's not really hard to beat the S&P. The S&P is the average of the market. So what do you want to be? I always kind of want to be above average. Hello. You know what I mean? That's, you know, try to beat it a little bit, but you know, you stay in that North of 10 and you draw in that seven or eight range, you're going to bump up and cover inflation as you go along. Now, you know, some of the wonky certified financial Pharisees types, you know, they go bananas on that calculation. But here's the thing that I try to get people to remember is when we've done studies of people that win with retirement, none of them won with retirement because of some nuanced understanding of 12B1 fees or some discussion about 11.8 versus 12.3 or 10.2. None of that caused them to retire well. What caused them to retire well is they actually put money in the freaking 401k. There's a high correlation between people that have money and people that save money. Why is this hard? That's so good. It's not a bunch of freaking theory. You've got to do it. And oh my God, you nerds drive me bananas. But so yeah, just it's good to be thoughtful about things. But sometimes you just got to do something, you know, just run up and knock the crap out of something. Well, what if you're a person that's like, Dave, I just invest in my, you know, my index funds. That's fine. I don't want to get into all this stuff. I just want to do my index. That's fine. You're just average. You're just average. Average. Average return. You're a C student. Not a C student. Well, that's what average is, isn't it? You're not failing, but nobody's looking at you. You're leaving a lot of money on the table. Yeah, you left some money out there. It's okay. I just want to beat it just because it's a game, you know, I don't care. And by the way, none of that is what's making me wealthy. What's making me wealthy is the fact I'm actually investing. You actually put money in. Over time, over the long haul, it's a habit. You know, we study these millionaires, we go, okay, did, you know, was it the rate of return that made you a millionaire? No. What made you a millionaire? Every month I put money in for 27 years and now I got $2.8 million. Ooh, so boring. They're just a tortoise. It's just like one step. Ugly tortoise. Ugly tortoise. Ugly tortoise. We need to print up tortoise t-shirts. You can wear that one, Dave. I'm on the air with my wife slamming my fashion choices here. You don't like my tortoise t-shirts. I'll let you wear it and then we'll point to it. We'll just point to it on you. Just point to the tortoise. The little pudgy tortoise that could. Now you said that part, not me.