Is $1 Million Enough for a Comfortable Retirement?

$1 million sounds like a lot of money. And it is. According to a recent Schroders survey, only 21% of workers over 45 think they'll reach that pinnacle. So if you're approaching retirement with a million-dollar nest egg, congratulations.

Even though you're ahead of the curve, you may still worry it isn't enough. If so, you're not alone. Schroders says workers approaching retirement age thought, on average, they'd need at least $1.1 million to live comfortably.

The big issue is inflation. You don't need me to tell you that our money just doesn't go as far as it used to. In real terms, a monthly income of $6,000 two years ago might only buy around $5,000 worth of goods and services today, per BLS data. That can have a serious impact on retirees or those close to retirement age who'd already priced out the next chapter of their lives.

Work out what income you might need

$1 million used to be a common target for retirees. It is actually the goal I set for myself a few years ago without doing any research into what I might actually need. Now I understand that there's no one-size-fits-all retirement, and I need to rethink that plan.

Our costs vary dramatically depending on where we live, how we live, our health, whether we have dependents, and a host of other factors. Rather than picking an arbitrary number, ultimately, it's our living costs that determine the amount we need to set aside. A couple living in St. Louis will have different retirement needs than a single person in New York City, for example.

Think about how much you might need to live comfortably in retirement and work backward from there. That may not be an easy task. I certainly can't predict what my life might look like in 20 years. All the same, there are some ways to make educated guesses. For example:

• Many financial planners advise that you'll need around 80% of your pre-retirement income. So if you earn $80,000 a year, you might need $64,000 a year when you retire.
• Another approach is to use your current spending habits to predict your retirement needs. Review your budget and think about what might change -- for example, you might have paid off your mortgage loan, which would eliminate one big cost. But you might also need to factor in higher medical bills.

It's important to think about how you plan to live. My parents traveled a lot in their 60s and 70s, so their costs were higher than couples who stayed home. Other retirees might study, take on a new hobby, or spend more time with family. The more of these things you can build into your budget, the clearer your financial picture will become.

Set your retirement goal

Let's say you think you need $64,000 a year when you retire. Some of that money will come from your investments, but that won't be the only source of income. Think about what you might get from Social Security and whether you'll have any other money coming in. You can use the Social Security benefit calculator to work out how much you can expect.

If you receive $24,000 a year from Social Security, you'll need your investments to generate another $40,000. Here's where another useful rule of thumb comes into play: the 4% rule. This says that if you have a portfolio, you can withdraw 4% every year, adjusted for inflation, without running out of money.

If we work backward from there, you'd need a $1 million portfolio to generate a $40,000 withdrawal in the first year. You could then adjust it upward for inflation each year and be confident the money would last. You might be able to withdraw a higher percentage, but you would run the risk of financial troubles further down the line.

The 4% rule isn't perfect. It doesn't fully factor in all variables, such as asset allocation, market performance, inflation, taxes, and the way people's needs may change during their old age. There's a big difference, for starters, between money in a Roth IRA, which you can withdraw tax-free, and money in a traditional IRA, which will be taxed.

Use a retirement calculator online to see how different variables could impact your retirement plans. You might also want to consult with a financial advisor to map out different scenarios and see how to best manage your investments. The 4% rule is a good starting point, but it's important to adjust it to your situation.

A $1 million portfolio could generate $40,000 a year

If your retirement savings aren't where you want them to be, there are steps you can take. Look at your current budget and see how you can squeeze some extra savings to funnel into your brokerage account. The more you can contribute now, the more time it has to grow.

Bear in mind that there are a lot of gray areas in retirement planning, which gives you more flexibility. For example, some people might want to retire at 65. But if you haven't saved as much as you wanted, you might retire later, or work part time for a few years. If you're over 50, you might use IRS catch up contributions to put more money into your tax-advantaged accounts, such as an IRA.

A $1 million portfolio can go a long way. The 4% rule shows we could expect it to generate the equivalent of around $40,000 a year. Other tools will give us other estimates. Ultimately, only you know how much you'll need to live comfortably, and whether that sum will be enough. Most of all, you might be able to make some compromises to stretch that money a little further.