Do You Need a Million Dollars to Retire?

When baby boomers were young adults, we imagined becoming millionaires and being set for life. Today, that million dollar nest egg doesn’t look so comforting. This was the topic of a recent survey conducted by Scottrade of 226 registered investment advisors. Let’s take a quick look at the numbers.

The survey asked questions pertaining to all age groups but I want to focus on baby boomers and retirees. For these groups, the survey says:

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million. According to Scottrade’s analysis, seniors are the only generation that may come close to needing only $1 million. Forty-four percent of advisers said $500,000 to $1.5 million is sufficient for average families in that age bracket.

I have a couple of critiques of the survey  methodology. First, when you ask “investment advisors” questions about how much money people need, they tend to respond “more than they have now.” That’s because these “advisors” make their money selling and therefore are highly motivated to have you invest with them.

Second, the numbers being thrown about by the survey participants do not take into account important variables among different baby boomers and retirees. These include whether there is pension income available and whether the retiree will be living in a house that is paid for. Both of these factors can significantly impact the need for a retirement nest egg to provide income.

Another factor is whether you are planning on “leaving something to the kids.” On that issue, my suggestion is to make it a surprise to the kids and to you. Don’t be afraid to spend what you have. If there is something leftover at the end, good for the kids.

The third critique pertains to this comment by an advisor quoted in the article:

Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income. “I’ve never been a big fan of planning to earn less in retirement than you are making now,” he says. “I’d like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?”

This last comment is such a discouraging over-generalization. Having a plan or expectation for matching your work-life income when you retire is fine except that in many cases (including ours), it’s total overkill. Assuming that you will need 100% of your current income when you retire assumes that you are now living paycheck-to-paycheck with nothing left over to save or invest. If that is the case – and you are a baby boomer – your retirement is already in jeopardy. I prefer a more analytical approach to calculating a retirement income replacement ratio.

(To read the entire survey article, here is the link.)

Returning to the question – Do you need a million dollars to retire? – the answer has to be “it depends.” I won’t care what our technical net worth calculates to be as long as we have sufficient hard and financial assets to provide an acceptable lifestyle. With a house, a car, no debt, a decent amount of pension or Social Security income, an inflation-protected income plan, and long-term care insurance, I’m content. On the other hand, if you have car payments,  a mortgage, and no pension when you retire, one-million dollars is not going to get you very far up the retirement lifestyle scale.

What about you? What’s your number?


  1. says

    Being a millionaire really dosent mean much any more. When I was growing up, and the government was talking millions of dollars, That was a lot of money. Than it became billions. Now our elected officials are talking Trillions, Do you know how many zeros are in a trillion? All of or retirements are in jeopardy.

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