Is a million enough to retire without leaving the United States?
A million dollars is enough that you can retire comfortably without leaving the United States. If you have well under a million, you might leave the country and live somewhere with a low cost of living. If you do not want to leave, a million dollars is enough to stay in America.
How much can you spend each year if you have one million saved?
How much do you plan to spend each year after you retire? If you spend $40,000 per year, a million will last for the rest of your life, even if you live for 25 years after you stop working.
If you spend more like $100,000 per year, on the other hand, the money may run out while you are still alive. You might have to cut way back on spending if you currently spend $100,000 per year and only have a million saved for retirement.
While the life expectancy at birth in the United States is 78, this number takes people who die young into account. It is not a good number to go by for people who are just retiring now.
The life expectancy for someone who is already 60 in the United States is 83. At age 65, you can expect to live nearly another 20 years. Expect your post-work life to last for 20 or more years, not only 10 or 15 years.
Different people need different amounts of money to retire
Someone who spends $30000 per year for ten years could retire on only $300,000. Someone who spends $100,000 per year for 30 years would need $3,000,000 to retire.
So one person might need two, five, or ten times more money to retire than another. There is no good answer to "how much money is enough to retire" - people have drastically different expectations about what their post-retirement life will be like. A million is more than enough for a comfortable but not extravagant lifestyle.
Understand how your retirement savings will be taxed
Different types of retirement savings accounts are taxed in different ways. Whether or not you have to pay income taxes on your retirement account withdrawals can make the difference between a million being enough to retire or being too little.
People have to pay taxes on their retirement savings regardless of the type of retirement savings account they have. For some retirement accounts, you pay taxes before you deposit the money. You can deposit the money tax-free for types of accounts but have to pay taxes after you withdraw it.
If you have to pay income tax on the money you withdraw from your retirement account, you should know precisely how much you will have to pay in taxes. Don't underestimate how much income tax you will have to pay.
Do all millionaires have six-figure incomes?
While most millionaires do, many millionaires do not. Some people that never earn a six-figure income before taxes in any year still manage a million-dollar retirement.
Ordinary people that consistently add to their retirement accounts every year and start saving young become millionaires. You do not need to make a huge amount of money, inherit a huge amount of money, or get lucky with risky investments to retire as a millionaire.
Social security payments make it easier to retire
A typical social security payment for a retired married couple is $2260 per month. You cannot live well on only $27000 per year, but social security payments do make it easier to get by with smaller retirement savings.
A million dollars is well above average
Most people do not have nearly enough saved to live well after retirement. An average household close to retirement has only $174000 in total wealth - not nearly enough to retire well.
Ordinary people rely on social security and have a lower standard of living after retirement. If you have a million dollars, you are far above average. However, this might still not be enough money from your point of view, depending on what you expect your lifestyle to be.
How low will your expenses be after you retire?
Retirees often have much lower costs of living than those who are still working, which is part of why people do not end up destitute if they retire with way too little.
Younger people have mortgages to pay and children to take care of. Older people often have much lower expenses, so they can live on less money per year without a lower standard of living.
For many people, there are also expenses associated with working; these go away after you retire. If you do the math and find that you will have to spend less each year after you retire, you do not necessarily have to accept a more frugal lifestyle. A million can be much more than enough for a long retirement if your expenses are low.
Keep medical expenses in mind
Even if you think that you can retire comfortably on a million dollars or less, you might have to pay a fortune in medical expenses. If a couple retires at 65, they will pay an average of $285,000 in medical expenses during the rest of their lives. These expenses do not even include the costs of long term care in a home, which can increase the costs much further.
A million is usually enough to retire, but if you can realistically save more, you should. If anything will have you unexpectedly running out of money in retirement, it is medical expenses. You might have to pay even more money for medical treatments than the nearly $300,000 average for a couple.
People underestimate how much they are going to spend on medical treatments after they retire. Individuals assume that their total medical expenses after retirement will be less than $100,000 and are surprised by how much more the average person pays. For individuals, men pay $135000, and women pay $150000 after retirement.
Medicare might cover some of your costs, but you will still have to pay for a lot of medical expenses, on average. While you are still working, you might save money specifically for medical expenses with a medical savings plan.
Medical savings plans have a lot of tax advantages, sometimes better than typical retirement savings plans do. Put money into a medical savings plan long before you retire because you cannot continue to add money to it after you have Medicare. There is also a limit on how much you can contribute per year, so start earlier if you can.
You might also buy long term care insurance. Medicare doesn't cover everything, far from it, so you need medical savings. You can save money by purchasing long term care insurance instead of simply paying for long term care when you need it.
Nursing homes are expensive - if you want a private room, it can cost you $100,000 per year. Even care in your home can cost $50,000 per year. Unlike Medicare, long term care insurance pays for in-home caregivers.
Despite how scary it is to face increasing medical expenses as you get older, a million can still be enough to retire well. Typical people over the age of 65 spend only $3800 monthly. This $3800 includes medical expenses, so if you have both a million dollars and a social security income, you can live much better than an average person does.
How much traveling can you do if you retire with one million?
Since the cost of living is lower in most other countries, you could choose to live in other countries for the rest of your life without running out of money. Other countries want retirees to bring money into their economies. They will happily give you a long term stay visa.
If you want to travel a lot but continue to live in the United States, it can be more expensive. Travel can be costly or cheap, depending on where you go and what you do.
While a million dollars is enough to retire on, it is not a fortune. If you want to travel a lot, you might have to prioritize it over other things. Things like expensive vehicles may become unaffordable if you want to travel a lot and face medical costs.