Different people establish different savings goals when it comes to retirement. But you'll often hear people say that $1 million in savings is what it takes to retire comfortably.
Now the good news is that accumulating a $1 million 401(k) or IRA actually isn't so difficult -- not when you start funding that account from a young age and invest your savings wisely. But is $1 million really the number you should be targeting? Or will a $1 million nest egg actually cause you to fall short?
It's all about your personal goals
For some seniors, a $300,000 nest egg might make for a comfortable lifestyle. For others, a $2 million nest egg might result in having to compromise on plans and goals.
As such, it's difficult to say with certainty whether $1 million is enough to retire on. Much of that will depend on factors such as:
- What your Social Security benefits look like
- What your desired lifestyle is, and how you want to spend your days
- What other income sources you have at your disposal
- Whether you're sharing that $1 million with a spouse or you have it all to yourself
The more income Social Security pays you, the less reliant you might be on your savings. And so it may be the case that a $1 million nest egg is sufficient if you're in line for a $2,500 monthly Social Security benefit, but for a $1,500 monthly benefit, not so much.
Your plans for retirement will also dictate how much income you need. If you intend to downsize your home and spend most of your free time gardening, hiking, and working on projects around the house, then you may not need the same nest egg as someone who wants to hang onto a larger property and travel overseas six times a year.
Furthermore, it may be the case that you have outside income sources available for retirement, whether it's rental income from a second home you own or a hobby you intend to monetize. If you're collecting $2,000 a month from either source, that could make it so you don't need as much money in your nest egg.
Finally, if you're single, you'll only have to cover your own healthcare, food, and entertainment costs. If you're married, those things could cost double. And that means you may need more money in savings to cover them.
What's the right call?
It's easy to assume that $1 million is the best retirement savings total to aim for. But instead of doing that, assess your personal needs and income sources to determine how much to save.
You may decide that $1 million is, in fact, the ideal retirement plan balance for you. But if you decide that you need to aim higher, there's nothing wrong with that if you're willing to make the effort. And if you feel that a $500,000 nest egg will more than suffice for your retirement, then there's no need to make sacrifices that leave you miserable in the process to double that sum.