Can I Retire at 60 with $1 Million Dollars?

Reaching a million dollars in your retirement portfolio by age 60 is a notable milestone, but it’s only part of the picture. True retirement readiness involves more than just hitting a financial target—it requires an understanding of factors such as pension income, Social Security benefits, personal expenses, and potential long-term care needs.

Pension Income

Whether you have a pension can significantly affect your retirement outlook. A pension provides a steady income stream, which can alleviate some financial pressure. Decades ago, in 1975, defined benefit plans represented approximately 32% of all retirement plans. That percentage dropped to 28% by 1987. Today, only 10% of private-sector nonunion workers have access to a pension plan, according to the National Compensation Survey from the Bureau of Labor Statistics, completed in March of 2023.

Less defined benefit pension plans mean that retirees are more reliant on taking withdrawals from their own portfolio. However, retirees that have pension income in addition to their own investment portfolios will be more likely to retire with $1 million vs. retirees with no other sources of income in retirement.

Social Security

This government benefit plays a critical role in many retirees’ income. The amount you receive can vary based on your work history and when you start claiming it. The higher your Social Security benefit, the less you will need to rely on your portfolio to meet your expense requirements. Also, if you’re married, and both spouses have similarly high Social Security benefits, that can further reduce the reliance on portfolio withdrawals during retirement.

However, it’s common that one spouse’s benefit may be significantly less than the other spouse’s or may not be entitled to a working benefit at all. In that case, the non-working spouse would only be entitled to half of the working spouse’s benefit, if the non-working spouse waits until their full retirement age to file for Social Security benefits. Once again, the percentage of your total need that is covered by Social Security is going to significantly affect the projected outcome of your retirement plan.

Retirement Expenses

One of the most critical factors in retirement planning is understanding your expected expenses. Knowing how much you plan to spend in retirement helps determine if your savings are sufficient. As you may guess, the more expenses you have, the less likely that you’ll be able to safely retire with $1 million.

A best practice for projecting your retirement expenses is to monitor your pre-retirement expenses, or budget backwards. The mistake that many make is they try to start with a blank slate and try to build a retirement budget from scratch. Inevitably, certain variable expenses are left out, and they end up underestimating their actual expenses. Budgeting backwards simply means looking at how much you’ve been spending and determining if your expenses are likely to stay about the same, go up, or go down after you retire.

Investment Returns

Future returns on your investments are uncertain. Historical averages can provide a guide, but actual returns will vary based on the current environment and your overall allocation. While it may be tempting to assume that you’ll earn the same as markets have earned historically, we advise our clients to understand their outlook if investment returns are below historical averages. Because this is a variable out of your control, it’s important not to overestimate your investment returns.

Inflation

Rising costs over time can erode your purchasing power, impacting your retirement budget. Once again, what if you assume inflation will be at 3%, but it ends up being 3.5% for the duration of your retirement. With factors that are out of your control, like investment returns and inflation, you must look at a range of possibilities to ensure that your retirement plan can endure in an environment that is unfavorable.

Long-Term Care Considerations

Planning for potential long-term care is essential. A significant long-term care event can drastically impact your savings. Without adequate insurance, these costs could deplete your retirement funds prematurely. Therefore, you must understand the potential future cost of a long-term care stay and build a contingency plan to address the possible cost. While many retirees do secure long-term care insurance, others may not be insurable or may plan to pay all costs out of pocket, also called self-insuring.

If your plan is to self-insure, you’ll want to make sure that you have adequate assets to cover this expense, should it arise.

Illustrating the Scenario

It’s not only important to evaluate each of these variables independently, but also to combine them so that you can see the compounding or stacking effect of having more than one unfavorable variable. For example, what if your investment returns lag historical averages and inflation is also higher than usual? What if you spend more than originally planned, then you need to go into a long-term care facility?

This is where working with a retirement-focused wealth advisor can be crucial in layering these assumptions. A solid financial planning or retirement planning software program should be capable of showing you a range of outcomes and should also be able to show you where your plan may be most vulnerable.

While many advisors like to use a Monte Carlo analysis, we like to a series of linear projections to simply the output. Read here for more information on using Monte Carlo vs. Linear Planning for Retirement Projections.

Final Thoughts

Accumulating $1 million dollars at 60 is quite an achievement and can open the door to retirement but making your retirement decision requires careful planning and consideration of your unique circumstances. Key questions to ask yourself include:

What are your sources of retirement income?

How long will $1 million dollars last after 60?

Can I live off interest of a million dollars? 

How much monthly income will $1 million generate?

Consulting with a financial planner who can provide personalized advice can help you navigate these decisions. If you need tailored advice on your retirement strategy, seeking the guidance of a CERTIFIED FINANCIAL PLANNER™ professional can provide clarity and help you make informed decisions.

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