For years, financial experts have suggested a target retirement savings goal of $1 million. But when you consider things like inflation, with rising health care costs and longer life expectations, that money may not go as far as you think. Aiming for $2 million in retirement savings may be more practical or even necessary to enjoy the lifestyle you want. But is it possible to retire with $2 million, and if so, how much do you need to save and invest every year? And can you retire with $2 million if you start saving late or don’t earn as much? Here is an overview of what careful planning and the work needed to reach $2 million.
Consider working with Financial Advisor when you chart a course on a $2 million retirement egg or whatever, for that matter.
Why retire with $2 million?
Saving $1 million for retirement may seem like more than enough money, especially if you’re contemplating a more frugal lifestyle. For example, if you’re planning on downsizing your home, cutting back on frivolous spending, and maintaining good health to limit medical expenses, you can assume you could easily make over $1 million. la.
However, it is important to consider how far $1 million in retirement can actually go. Even if you’re replenishing your savings with Social Security Benefitspension or annuity, there are certain things you may not have control over that can derail your retirement plan.
For example, developing a serious illness, which can lead to long-term care facility. If you don’t have a long-term care policy, the cost of living in a nursing home can dramatically cut your retirement savings.
Then there are other things like inflationary and market volatility needs to be explained. As the prices of consumer goods and services increase, your purchasing power decreases. That means your money doesn’t go far. If inflation, combined with market volatility, affects the value of some of your investments, it could result in losses, meaning you’ll have less money to live on.
And of course, you have to take the longevity into account. When living to 90, 95 or even 100 becomes the norm it can be stressful for a $1 million nest of eggs. Without the right plan and budget, you could run out of money sooner than later. All of that can make saving $2 million for retirement a more appealing goal.
How to Retire with $2 Million
If you want to retire with $2 million or more in your name, there are a few things you need to do to make it happen. Otherwise, you may not reach your goal. Here are some of the most important things to keep in mind as you map out your retirement savings strategy.
Estimate Your Retirement Budget
The first step to saving $2 million for retirement is to determine if it’s a good number to work towards, based on what you plan to spend later. Creating a hypothetical retirement budget can help estimate what you will spend every year and what your target retirement withdrawal rate should be.
Your retirement budget should cover normal living expenses, including:
But you may also need to include medical and healthcare spending as well as any money you plan to spend to maintain a certain lifestyle. For example, it might include travel expenses or money you spend on hobbies.
Also, consider where debt fits retirement budget. If you want to retire with $2 million and be debt-free, then you’ll have to figure out where you can actively save and repay during your working years.
Review your timeline
Once you have your retirement budget in place, the next step is to break down your $2 million savings goal. This is as simple as estimating how much time you have to save, based on your current age and when you hope to retire. For example, if you are 25 years old now and want to retire at 65, you will have 40 years to save and invest. On average you have to grow your portfolio by $50,000 a year. This includes money you contribute directly and income from investment portfolio.
If you’re starting late, say at age 35, you’ll need to decide if retiring at 65 with $2 million is a realistic goal. Having 30 years to save means you need to grow your portfolio by an average of $66,666 a year. If you don’t think you can do it with your current savings and return rates, then you may need to consider waiting until age 70 or 75 in retirement to hit the $2 million mark.
Use tax-advantaged plans
Tax-advantaged plans are the first place you might look to start saving for retirement. If you have a 401(k) Plan at work and you want to save $2 million for retirement, maxing out each year can help you get there. If your plan includes an employer matching contribution, that’s free money you can add to your retirement savings.
After a 401(k) or similar plans, you can consider a individual retirement account next. Choosing the right Traditional IRA or Roth IRA can depend on your current tax situation and where you expect to be tax-wise in retirement.
If you’re in a higher tax bracket now, you may find the deduction allowed for traditional IRA contributions worth. Of course, this depends on whether you expect to be in a lower tax bracket in retirement, at which point you’ll have to pay taxes on withdrawals from your IRA.
On the other hand, you can choose a Roth IRA if you anticipate being in a higher tax bracket in retirement. And for $2 million or potentially more savings, you can get it, based on how much you withdraw each year. In that case, you may benefit more from being able to withdraw tax-free from a Roth IRA.
Invest in stocks with an online brokerage account
Contributing to a workplace retirement plan or IRA is a starting point, but you may need to expand your investment options to reach your $2 million retirement goal. Opening an online brokerage account allows you to continue building your portfolio, in addition to annual contribution limits for tax-advantaged plans.
You can use a brokerage account to invest in stocks, mutual funds, and exchange-traded funds. Some brokers also offer bonds, futures, options, and even cryptocurrency trading if you’re looking for more ways to diversify.
Investing in stocks is especially important if you’re trying to retire with $2 million because they offer the best growth potential compared to other investments. Stocks are riskier, but the longer your investment horizon, the more time your portfolio will have to recover from periods of volatility.
When choose an online broker, be sure to pay attention to the selection of investments as well as the fees you will have to pay to trade. Ideally, the brokerage company you choose offers commission-free stock and ETF trading, which can allow you to keep more of the profits you make on those investments.
Increase your savings rate from year to year
Saving 10% to 15% of your income is a generally accepted rule of thumb for retirement planning. But saving that amount may not be enough if you’re trying to hit $2 million in assets by the time of retirement. Instead, you may need to save 20%, 30%, or even more of your income to reach your goal. If you can’t afford to invest that much of your income now, you can increase your savings rate every year. For example, if you’re saving in a 401(k) and you get a 2% raise each year, you can transfer that extra 2% into your retirement account. Or when you pay off your debt, you can redirect the money you’re using for those payments to online brokerage account.
Retiring with $2 million can boost your financial security tomorrow if you’re willing to put in the effort to save and invest today. Whether you can retire with $1 million, $2 million or more may depend on the details of your financial situation.
Retirement planning tips
Consider talking with your financial advisor about strategies you can use to save $2 million for retirement. If you don’t have a financial advisor, SmartAsset’s financial advisor matching tool can help you find one. You only need to answer a few brief questions to receive personalized advisor recommendations for your local area. If you are ready, start right now.
An important key to achieving your financial goals in retirement is making sure you have the right mix of asset classes. It’s a free place asset allocation calculator may be useful.
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