When you think about your retirement, your mind probably fills with questions. Is $2 million enough to retire? What about $1 million?  How can I be sure?

It’s normal to have questions about retirement, especially if you’re thinking about something that is decades away.

With such an important life decision, let’s crunch the numbers to see how a $2 million retirement nest egg might actually stack up. 

Is $2 Million Enough to Retire?

When you think about your savings goal for retirement, you want to make sure that you’re saving enough–and also not too much. So let’s answer the question “Is $2 million enough to retire?”

No one has a crystal ball. So we can’t know exactly how much things will cost or what money will truly be worth in the future. But we can use the 4% Rule to make helpful predictions.

The 4% Rule is an estimate of how much money a retiree can withdraw from their portfolio each year without having to worry about running out of money. This percentage has been tested to hold true in virtually all scenarios for 30 years! While it’s not perfect, the 4% rule is a helpful benchmark.

Using the 4% rule, a retiree who has a $2 million portfolio can withdraw $80,000 per year. Even as that money is withdrawn, the portfolio will continue to grow. If you prefer to be more cautious, you can adjust the safe withdrawal percentage down to 3.5% or even 3%. 

Now that you can estimate how much you can withdraw on a $2 million portfolio, you can start to answer whether or not it is enough. To do so, there are factors that you want to consider. 

Some of those factors include:

• Medical history and current health conditions
• Retirement location and cost of living 
• Legacy plans regarding inheritances or bequests 
• Anticipated spending and lifestyle changes in retirement 

In many instances, a $2 million portfolio should yield a very comfortable lifestyle in retirement.

What About $1 Million?

If $2 million seems like a jaw-dropping amount of money, you’re not alone. Most Americans actually believe that the magic number for financial happiness is $1.2 million. 

So is that enough for retirement? Let’s put the magic number to the test! 

In addition to the 4% Rule, there is another rule of thumb you can use to estimate how much money you will need in retirement. Many financial professionals suggest individuals use the 80% Rule. That means you want to aim for a retirement income that is equal to about 80% of your final annual working income. 

Someone who earns $80,000 a year should aim to have enough saved to generate $64,000 each year with their retirement portfolio according to the 80% Rule. 

If you apply the 4% Rule to a $1,200,000 portfolio, then you see that you can expect to withdraw $48,000 each year without running out of money. 

Following both of those rules, $1.2 million might not be a magic enough number for our $80,000 per year earner. But $2 Million could be just right! 

Determining How Much You’ll Need in Retirement

There are several different rules of thumb you can use to ballpark how much money you’ll need in retirement. Two easy rules that I think are most helpful include:

• 4% Rule – This rule estimates how much you can withdraw (about 4% each year) from your portfolio per year for a 30-year retirement. 
• 80% Rule – This rule estimates how much you’ll spend in retirement by calculating 80% of your annual income before you retire. 

Of course, there are other things to consider as well. Some of these factors include:

• Estimated length of retirement – The 4% Rule is based on a 30-year retirement. You can use the average U.S. life expectancy coupled with your target retirement age to see 30 years is too short, too long, or just about perfect.  
• Portfolio makeup -The 4% Rule is based on a portfolio that is an even mix of stocks and bonds. The composition of your portfolio can alter what your portfolio might yield. 
• Taxes and fees – High taxes and hefty investing fees can take a bite out of how much money you have for retirement. Solid financial planning considers both. 

So What Happens If I Don’t Save Enough for Retirement?

After you crunch the numbers using some of the different retirement rules, maybe you realize you don’t have enough saved. What if you’re fast approaching retirement age? What if you work in a profession where you don’t have opportunities for big income increases to make up for a shortfall? In short, what happens if you don't have enough saved for retirement? 

There are three primary ways you can deal with a retirement savings shortfall. Let’s take a closer look at each option.

Delay Your Retirement Date

It’s amazing what pushing back your retirement date slightly can do for your prospects of a comfortable retirement. That will give you time to earn more money and time for your portfolio to grow. 

But don’t delay too much … our life expectancy isn’t forever!

Work Part-Time

Another option if you don’t have enough money saved for retirement is to work part-time. Even working 5-10 hours a week can help you stretch your budget by covering some of your living expenses. 

If you can find a part-time job with benefits like healthcare, that’s even better, especially if you’re planning to retire before Medicare sets in. 

Explore Social Security Benefits

While woes about Social Security are a common doom and gloom news station talking point, Social Security can and will provide support for many people in retirement. 

You can use the different Benefit Calculators on the Social Security website to get an idea of how much additional income you might collect in retirement. 

In some instances, the combination of Social Security plus what your portfolio generates is enough money to mean that you don’t need to delay retirement or work part-time. 

So in the end, Is $2 million enough to retire? 

We can’t know for sure, but we can sure use benchmarks like the 4% Rule to estimate.

If we’re still decades away from our retirement date, using tax-advantaged retirement accounts like a Roth IRA, employer matches and automation can help us hit our million-dollar goals. 

To help take some of the guesswork out of your retirement planning, you can explore Empower’s free financial planning tools. I like testing out various scenarios with the retirement planner or performing investment check ups to see how my current portfolio aligns with my future goals. By keeping a closer eye on my money now, I’ll be more likely to achieve my target retirement savings goals in the future.  

What do you think? Is $2 Million enough to retire for you?

Please let us know in the comments below.