Akash Panda is a blogger, entrepreneur, and writer. He is also a professional content writer who writes content for social media sites.
Is a $1 million portfolio sufficient to fund a pleasant retirement? Of course, this is dependent on several things. Some might argue that one million dollars are more than enough, while others would argue that a far greater sum is required because the dollar no longer has the purchasing power it once did. How luxurious do you want your retirement to be? Are you prepared to work as long as it takes to be able to spend freely, or would you be satisfied with an average income? We can determine if one million dollars would offer adequate income for an ordinary, below-average, or luxurious retirement by looking at typical retiree costs. Let's look at the primary expenses of retired families in terms of the revenue that a portfolio of that size might generate to see how comfortable of a lifestyle it could give. The Bureau of Labor Statistics provides these costs for elderly families or those led by someone 65 or older.
Housing is, unsurprisingly, the single greatest expense category among the key categories; the average retiree spends a reasonable amount of $1,322 per month on this category. This might be because many elderly people own their homes mortgage-free and clear, or it could be because they bought their home for a reasonable price many years ago and their expenses have remained largely unchanged. It might be because they have been living in the same location for a long time. While having a paid-off property might be advantageous in retirement, it does not imply that housing expenditures will be zero. In truth, the mortgage payment is only a portion of the overall housing cost, which includes taxes, insurance, and maintenance. The average cost of transportation for retirees is $567, making it their second-highest expense. Given that many older households share a car and don't drive as often as they used to, this figure is rather high.
They aren't transporting their children to soccer practice or commuting to work. Spending a total of $6,824 per year on a single expenditure may appear expensive, but it is still less than the average of families of different ages, which is approximately $9,000. According to various financial advice, overall transportation expenditures should not exceed 10% of your gross income. This will save you from falling into the common trap of overpaying in this area when it's tempting. Healthcare is the third most expensive item, costing $499 per month or slightly under $6,000 per year. Contrary to common opinion, healthcare expenses do not inevitably spiral out of control as people grow older; Medicare and Medicaid assist make these costs manageable for the elderly. However, long-term care should be considered, as well as the benefits and drawbacks of insurance, because these costs might be devastating. If you wind up in a long-term care facility and are unable to pay the monthly fee, your assets might be put at risk. According to the AALTC, nursing facilities cost an average of $8,000 per month, while the yearly long-term care insurance premium for couples 55 and older is approximately $3,000 per year. Without adequate preparation, the exorbitant expense of care may rapidly wipe out retirement funds.
The fourth highest expenditure is closely followed by healthcare. The average monthly cost of food is $483, which includes both eating out and cooking at home. However, research suggests that elderly individuals spend less money on dining out than those of other ages. The most likely factors include the recent rise of delivery services such as uber eats and doordash, in addition to the extra time the elderly have to purchase and prepare meals. The retirees prioritize charitable donations, which are their fifth-highest monthly cost at 202 dollars. Americans contribute roughly 3% of their annual income to churches or charities on average. Finally, at 197 dollars each month, entertainment is the last big cost. When you have plenty of spare time, you could go to the movies, take a two-week vacation, or travel the nation, but there may not be enough money in the budget to do so. To keep under budget, many elderly folks spend their free time participating in free community events and visiting local parks. Of course, there will be unexpected expenditures for everyone that can't be predicted. These different expenditures average $237 per month, for a total of $3,800 per month or $45,756 per year for these households. Given that the national median household income is around $61,000, this is a pretty near match, even after taxes.
Let's see if a million dollars is enough to fund the key expenditure categories for retirees, now that we know what they are. Using a sustainable withdrawal rate of four percent found by the trinity study, one million dollars will yield forty thousand dollars per year in income. In addition, the average social security income in 2021 will be $1,543 per month per individual. Depending on whether there are one or two social security beneficiaries in the home, the average annual income from this alone would range between $18,516 and $37,322. Adding the social security income and the portfolio income together would result in a total annual income before taxes of around $58,516. Is that enough to cover the average retiree's household expenses after taxes? It's reasonable to assume that one million dollars combined with social security payments are enough to cover the average retiree's expenses without the need for additional income. The precise tax bracket will vary substantially based on a variety of circumstances, but even if you pay 20%, which is on the high end for that kind of income, you'll still take home more than $3,800 each month after taxes.
Consider your filing status and the types of accounts in which your investments are kept in other income streams to obtain a better sense of what income tax band you'll be in after retirement. While one million dollars is plenty to cover the costs of the ordinary retiree's family, it's conceivable that they're on a budget and would want to spend more if they had the opportunity. Approximately one-third of retirees return to work, and the reason for this is most often financial. They may be OK with spending just 197 dollars each month on entertainment, having a food budget that doesn't enable them to eat out, and donating only 3% of their earnings. It's also possible that if they were able to, they would spend more money on travel and other costly hobbies such as dining out, giving and donating, and other things. Just because the average monthly spending is $3,800 does not indicate that these folks are satisfied with that amount. If you ask them, they'd likely prefer a bigger monthly budget, which is something to bear in mind as you plan for retirement.
Are you not quite where you want to be and feel like you'll never get there? If you don't think you'll be able to reach the point where your assets will provide you with adequate income, there are several possible options. Working part-time is an excellent alternative for many senior citizens since it gives several benefits in addition to financial gain. It may also enable you to leave your investments to grow for a bit longer, bringing them closer to your goals, or to postpone receiving social security payments, resulting in a greater overall income. Moving to a less expensive part of the nation or finding a means to cut housing costs might also help free up some cash. There are a variety of solutions available to help you live comfortably on a limited budget. A one million dollar portfolio should offer a comfortable retirement if you're okay spending the average amount of money, but it's not wise to make a blanket statement that it will be enough for everyone to live a happy life. There are several possibilities to consider, including where you reside, your interests, your health, and your spending habits. However, when paired with social security payments, it is sufficient to cover typical costs. Some people may require and desire additional income, while others will be content to live only on social security.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2021 Akash Panda