Retirement is often portrayed as a golden period to travel, pursue hobbies, and enjoy the fruits of decades of hard work. But for many, whether their savings will last looms large. You’re ahead of the curve if you’ve saved $1 million by age 60. According to the Federal Reserve’s 2022 Survey of Consumer Finances, the median retirement savings for Americans aged 55 to 64 is just $134,000. However, even with $1 million, your nest egg’s longevity depends on several factors, including your lifestyle, spending habits, and where you live. Let’s break it down.
The 4% Rule: A Starting Point
One of the most widely cited guidelines for retirement spending is the 4% rule, popularized by financial planner William Bengen in the 1990s. The rule suggests that if you withdraw 4% of your savings in the first year of retirement and adjust for inflation each subsequent year, your money should last about 30 years.
For a $1 million portfolio, this means withdrawing $40,000 in the first year. Combined with Social Security benefits—which average around $1,800 per month in 2023, according to the Social Security Administration—this could provide a comfortable retirement for many. However, the 4% rule isn’t foolproof. Market volatility, rising healthcare costs, and unexpected expenses can throw a wrench in the plan.
Lifestyle Matters: How You Spend Determines How Long It Lasts
Your spending habits are the single biggest factor in determining how long $1 million will last. Consider these two scenarios:
1. The Frugal Retiree: If you live modestly, own your home outright, and have minimal debt, $1 million could stretch for decades. For example, living on $40,000 to $50,000 annually (including Social Security) could make your savings last 25 years or more.
2. The Big Spender: If you’re accustomed to a lavish lifestyle—frequent travel, dining out, and expensive hobbies—$1 million could disappear quickly. Spending $100,000 a year would deplete your savings in just 10 years, not accounting for inflation or investment returns.
A 2022 study by the Employee Benefit Research Institute found that nearly 40% of retirees spend more in the first two years of retirement than they did while working. This “honeymoon phase” of retirement can significantly impact how long your savings last.
Healthcare Costs: The Wildcard
Healthcare is one of the biggest expenses in retirement, and it’s often underestimated. According to Fidelity’s 2023 Retiree Health Care Cost Estimate, a 65-year-old couple retiring in 2023 can expect to spend $315,000 on healthcare throughout retirement. This doesn’t include long-term care, which can cost upwards of $100,000 per year for a private nursing home room.
If you retire at 60, you’ll need to bridge the gap until Medicare kicks in at 65, potentially paying for private health insurance out of pocket. This can eat into your $1 million quickly, especially if you have chronic health conditions.
Where You Live: Geography Impacts Longevity
Location plays a significant role in how far $1 million will go. For example:
In Mississippi, one of the most affordable states, $1 million could last 25 years or more, thanks to low housing costs and taxes.
In California or New York, high housing prices, taxes, and the overall cost of living could shrink that timeline to 15 years or less.
A 2023 analysis by GOBankingRates found that $1 million lasts the longest in states like Tennessee and Oklahoma and the shortest in Hawaii and Washington, D.C. If you’re willing to relocate, you could significantly extend the life of your savings.
Investment Returns: The Power of Growth
How you invest your $1 million also matters. If you stash it in a savings account earning minimal interest, inflation will erode its value over time. On the other hand, a balanced portfolio of stocks and bonds could generate returns that help your savings last longer. Historically, the S&P 500 has returned about 7% annually after inflation, but this comes with risk. A market downturn early in retirement—known as sequence-of-returns risk—can devastate your portfolio if you’re forced to sell investments at a loss.
Working with a financial advisor to create a withdrawal strategy tailored to your risk tolerance and goals can help mitigate these risks.
Social Security: A Lifeline
For most retirees, Social Security is a critical component of their income. The timing of when you start claiming benefits can make a big difference. While you can start receiving benefits as early as 62, waiting until your full retirement age (67 for those born in 1960 or later) or delaying until 70 can increase your monthly payout by up to 32%. This extra income can reduce the amount you need to withdraw from your savings, helping $1 million last longer.
The Bottom Line: It Depends
So, how long does $1 million last after age 60? The answer is: it depends. For some, it could last 30 years or more; for others, it might run out in a decade. The key is to plan carefully, live within your means, and stay flexible. Consider factors like healthcare costs, inflation, and investment returns, and don’t hesitate to seek professional advice.
As retirement expert Suze Orman once said, “The truth is, you don’t know how long you’re going to live, but you have to plan as if you’re going to live forever.” With thoughtful planning, $1 million can be the foundation of a secure and fulfilling retirement—but it’s up to you to make it last.
Sources:
1. Federal Reserve’s 2022 Survey of Consumer Finances
2. Fidelity’s 2023 Retiree Health Care Cost Estimate
3. Social Security Administration (2023)
4. Employee Benefit Research Institute (2022)
5. GOBankingRates (2023)
