Is $2,000,000 enough to retire?

Every so often I’ll see posts on X where someone is asking, “Is $X enough to retire?” Usually, it is just engagement bait, and everyone will start to give their opinion on whether they think they could retire on that amount of money.

The thing is that it is different for every single person. Could a 20-year-old live off a $2,000,000 nest egg if they retired tomorrow? Maybe! Could someone who is 80 live off $2,000,000? Probably!

We could do some quick back-of-the-napkin math with those numbers. Assuming the 20-year-old has 60 years of expenses to fund, and their nest egg grew at 4%, they could theoretically withdraw about $7,300 per month until their plan ended (a much nicer way of saying they died) at age 80.

Could someone live off that? For sure. Would that become increasingly harder as they may want to get married, have a family, and purchase a home? I’d say so!

Life events are one of the biggest drivers behind people coming to a financial planner. Buying a home, getting married, and having children are all catalysts that can dramatically change someone’s financial life. Ultimately, that is why financial planners love to engage with clients for a full financial plan update at least annually.

When we run retirement scenarios for clients, it is much more in-depth than one number. There are a ton of variables that go into the simulations we run. Projected rates of return, age of retirement, Social Security income, savings rates during working years, tax implications of withdrawing funds during retirement, life expectancy, and lifestyle expenses are all variables that we are paying attention to. The two variables that carry the most weight are lifestyle expenses and when you wish to retire.

When we break it down, it makes sense as to why these two variables have the most impact on someone’s ability to retire. Lifestyle expenses or how much you are spending regularly really gives us an idea of what we need to have before the income faucet turns off. This is one of the keys to understanding what must be saved on an annual basis leading up to retirement. Sometimes a client wants to live frugally until they retire, and then they wish to spend more lavishly or travel, which we can model in our software. Sometimes clients believe they will be spending much less during retirement. Their mortgage will be paid off and their 4 kids won’t be around anymore which can significantly lower their expenses. This would be a massive windfall.

When it comes to age, it is kind of obvious. Once you stop working, you begin drawing down your assets to cover your lifestyle instead of using your compensation. It is a complete 180 from your working years. You earn and save as you work but during retirement, you have no earnings and are withdrawing and depleting your asset base. It can get a little more in-depth though, people looking to retire extremely early can potentially lower their Social Security income compared to working for longer, which is something we plan around.

Ultimately, there is a lot more that goes into “Can I retire?” than just one number. That is why it is so hard to say whether someone could retire off just one detail when so many variables go into it. If someone had $2,000,000, was 40 years old, and spent $250,000 each year, then this person might find it hard to retire off that amount of money. Without more context and a better understanding of someone’s full financial picture, it is incredibly hard to say whether someone could retire off an arbitrary nest egg.

PS: While as a young person, it may seem kind of crazy to think someone could spend $250,000 each year after tax, it is not that uncommon. A mortgage payment and a few kids could easily get you there… Financial planners are never here to judge your situation; we’d much rather tell you what you can do to sustain what makes you feel comfortable. 

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Have a more specific question or want to get your finances in order? Feel free to reach out to [email protected] for a free consultation!