Is 1.5 million enough to retire? The answer depends on your age, assets, spending, investment returns and how many income sources you’ll have in retirement.
In this post, I’ll show you how to see if 1.5 million is enough for you to retire based on your own situation.
At Retire Certain, the goal of my articles is to empower you to see for yourself how much money you need to retire. By embracing your own financial future, you are more likely to have enough money to retire when you want, how you want.
While I am officailly an AFC®, this article is based on almost 40 years of personally investing in stocks and navigating my family through my husband’s early retirement from employment over 15 years ago when we saw that bond and dividend income may not sustain our desired lifestyle in retirement.
I do not sell wealth management services, I just like investing.
Run Out Calculator
We’re going to step through the Run Out Calculator here on the Retire Certain website. Open a separate browser for the Run Out Calculator so you can enter your information as I walk you through them here.
(Don’t worry – I can’t see anything you enter:)
Step 1 – Enter $1,500,000 into the Run Out Calculator in the Savings Balance field as shown below. The rest of this post will step you through the remaining 4 fields.
You’ll see that there are only 4 factors to consider beyond the 1.5 million dollar investment account which is already known.
This sounds easy, right? Like most things in life that really matter, it’s simple but not easy.
But tackling those challenges are the ones where we grow the most so let’s begin.
Run Out Calculator Withdrawal Field
Step 2 is to enter the Withdrawal Rate into the Run Out Calculator.
The withdrawal rate in this Run Out Calculator is the only field entry that is truly under your control other than the retirement savings balance you’re planning to have.
It’s a great thing that this is under your control because by controlling your spending in a way that supports your retirement goals, you increase the odds of not outliving your money.
The amount you withdraw is a function of your spending.
If you don’t know your monthly expenses, get clear about what they are and enter the amount into the Run Out Calculator.
While you’re at it, omit expenses that are less important than having the 1.5 million to retire. Looking at it in this way will help prioritize the choices you’re making with your money.
It’s easy to feel like a victim of the stock market or the Federal Reserve when considering how much money you need to retire. But when you view your spending from a choice perspective, you’re in the driver’s seat, which leads to better results.
The more control we realize that we have, the better results tend to be since no one wants to put in effort for anything for which they can’t change the outcome.
3% of 1.5 Million Dollars
For this example, I am going to enter $3,750 into the monthly withdrawal field. This is 3% of the retirement savings of 1.5 million dollars.
Using a common retirement withdrawal method of 2% to 4%, which you may be familiar with, led me to use $3,750. Note that the traditional retirement withdrawal method is based on the retirement account value each year and adjusts for inflation and this calculator also adjusts for inflation.
There may be some variation, but the retirement withdrawal method should yield similar results to the calculator we are using, particularly in the early years.
The retirement withdrawal method, however, will adjust for actual inflation as the yeas go by in retirement.
In this post, we are using the Run Out Calculator so you can estimate if 1.5 million is enough to retire for planning purposes.
Run Out Calculator Assumptions
I like that this calculator uses the word assumptions. It’s super important to realize that retirement planning is mostly based on assumptions, the biggest of which is how long you’ll live.
The fact that retirement planning is based on pure assumptions and estimates is often forgotten in our natural tendency as humans to control risk.
The rest of this post will address the remaining 2 fields, which are based on estimates, or assumptions.
Yearly Withdrawal Increase = Inflation
Step 3 is to enter the Yearly Withdrawal Increase into the Run Out Calculator
In this field, you’ll enter the inflation rate for which you want to plan your withdrawals. Long term inflation rates are 3%. More recent inflation is around 2%.
You can view historical inflation rates and decide what you want to use for projected inflation.
You may also want to read a good article about why the reported rate of inflation is not accurate.
Because I like to be super conservative in my estimates, I’ll use 3% in this example. I had rather end up with extra money than run out of money.
Savings Interest Rate = Investment Return
Step 4 is to enter the Savings Interest Rate.
The Savings Interest field is probably the biggest unknown in the Run Out Calculator if your investments are in the stock market or even the bond market.
What’s referred to as “savings interest rate” is really the return you expect to get on your retirement savings.
To give you some perspective, the extremely long term return for the S&P 500 is around 9%. It’s really important to note that for retirees entering retirement around the end of a long economic expansion period, much lower numbers should be used in my humble opinion.
Now, to change your expectations a little and maybe dampen your hopes: At the end of the 1990’s decade, smart financial gurus were telling investors not to expect returns in the next decade like they got in the 1990’s.
Boy, were they right since the S&P 500 index returned -.95% including dividends and -2.72% not including dividends for the decade from 2000 to 2010. Ouch!
(And this was exactly when my husband “stumbled” into early retirement, as we like to say. I’m writing about this stuff because we lived it and invested through it, so I get it!)
How Much to Expect from Stocks and Bonds Over the Next Decade
Let’s see what a top expert who is even older and way smarter than I am is saying about how much to expect from investments in stocks and bonds over the next decade.
Highly esteemed John Bogle predicts a 5.5% return on stocks over the next decade and 4% (3.8%) from bonds over the next decade.
This return projection excludes investment expenses, wealth management fees, and taxes.
Legendary John Bogle passed away in January 2019 but below is the next decade prediction which was updated that same month by the firm he founded, Vanguard.
Interestingly, this Morningstar YouTube video only has about 13,000 views yet is one of the most important YouTube videos on investing in 2019.
As humans, we gravitate toward the more promising higher returns. It’s no fun to plan for 1.5 to 2% after expenses and inflation, right?
Plus, recency bias drives investors to think that what has happened recently will happen again.
But this projection seems realistic to me after the bull market that began in March of 2009 and the fact that interest rates are so low.
Projected Return for This Example
Even though it’s painful, I am going to use a 4% projected return in this example and here is why.
Again, I am conservative in my estimates. First, it’s better to be pleasantly surprised with extra money in retirement than to run out of money in retirement.
Second, bull markets are followed by bear markets and vice versa. Since we are looking beyond the next decade with our retirement plan, there will likely be a mix of bulls and bears in the time frame we are estimating for.
In other words, your retirement planning will likely span several decades in which the economy (and related stock market) can both flourish and flounder.
Tax Field in Run Out Calculator
The tax field is wide open for estimation since it is a factor of your personal situation. Twenty two percent may seem high since as of this writing due to a qualified dividend tax rate of 15% and potential retirement account advantages.
On the other hand, state taxes are important to remember and taxes could also rise.
This example is simply to show you how to use this Run Out calculator to get an estimate if 1.5 million is enough to retire. Check with your CPA if you want help, but in reality, no one can predict future tax rates.
Again, I like to overestimate rather than underestimate expenses to decrease the probability of running out of money in retirement.
Results for Retiring with 1.5 Million Dollars
In this example, as you can see, you’d be left with over $400,000 after 30 years of withdrawing the $3,750 monthly amount and beginning with 1.5 million to retire.
That’s good since you may live longer than 30 years after retirement.
As noted, your own numbers need to be entered into the Run Out Calculator since your monthly spending, taxes and expected return numbers will be based on your own situation.
If 1.5 Million Isn’t Enough to Retire
If, after entering your own data into the Run Out Calculator you see that you will run out of money, don’t despair.
There are many ways to increase investment returns, increase wealth and to create new income sources. Click here to read my related post How to Build Wealth.
For creating income sources before retirement, read the following posts:
Or get my eBook here with our top 9 income generating and wealth building strategies based on our own experience.
Dangerous Omissions in Retirement Planning
It’s easy to forget about certain expenses that can sabotage an otherwise logical plan to retire with 1.5 million. Examples are health care, medical insurance, long term care, disability, property taxes, or dependent care.
On the other hand, you also want to consider all potential advantages, such as extra income sources, inheritance, or unanticipated windfalls.
You don’t want to spend too little, but you don’t want to spend too much in retirement, either.
The exception is that if you would be happy to leave money to heirs or a charity instead of spending all your retirement savings. In this case, spending too little will allow you to accomplish this worthy goal.
Again, the amount of money you need to retire is very personal.
So, Is 1.5 Million Enough to Retire?
Only you can know if 1.5 million is enough to retire comfortably based on your lifestyle desires and your financial situation.
Working with what you can control, such as where you live and how much you spend is important. Making wise decisions around this will offset having to deal with the things that are beyond your control, such as inflation, the economy and the stock market.
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