Why a $1 Million Goal for Retirement Still Matters

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A million dollars isn't what it used to be, but it's still a lot of money. It's enough to be a life-changing amount of cash, even if it winds up not being enough to completely fund your retirement on its own.
On its own, using the 4 percent withdrawal rule as a guide, that cool million should provide you around $40,000 per year in inflation-adjusted income. Still, for typical American retirees, personal savings is just a start:

  • Social Security adds supplemental income -- around $15,600 a year for a typical retiree.

  • Medicare covers a substantial portion of health insurance costs for Americans age 65 or older.

  • Typical retirees pay neither Social Security nor Medicare taxes on their non-wage incomes.

  • If you've paid off your mortgage by the time you retire, your housing costs are a mere fraction of what they normally would be.

  • If your kids are grown and independent, the costs of raising them can vanish.

With that total picture in mind, even today, a $1 million nest egg still should provide a great foundation for a comfortable retirement in most of the country.

There's More to Retirement

%VIRTUAL-article-sponsoredlinks%Of course, you may want more out of your retirement than what that type of nest egg can provide you. Things like international travel, spoiling the grandkids and/or a summer home up north and a winter home in the Sun Belt can easily chew through the kind of income that size nest egg can provide. In addition, as you get deeper into retirement, you may start needing help managing your home and daily activities, which could add substantially to your costs.

Not matter what retirement lifestyle you plan to have, it's smart to work towards that $1 million goal. Here are five key reasons:

  • Your $1 million nest egg can grow. If you're not forced to retire by work or by health reasons, putting in another year or two can help your nest egg continue to grow before you tap it. Two "extra" years compounded at 6 percent annually can turn that $1 million into a little more than $1.12 million and make that 4 percent withdrawal amount almost $45,000 instead of $40,000.

  • You might reach that $1 million level early. The reality is that nobody can guarantee what level of returns the market will provide. One strategy to deal with that uncertainty is to aim high and plan low -- to invest as though you'll earn a fairly low rate of return while striving to achieve a higher one. If you get to your target early, it gives you incredible flexibility on what to do next. It's far better to have the money and flexibility early rather than kick yourself in your 70s for not getting there at all.

  • Even if you don't reach that $1 million target, you'll still be better off. Say you save throughout your entire career, only to wind up at retirement with a $750,000 nest egg rather than the $1 million you had targeted. That $750,000 still beats the daylights out of the $0 you'd wind up with if you hadn't invested in the first place.

  • You may be able to "retire" to your dream job. If you always wanted to work in a certain field or for a charity but weren't sure you could make ends meet, that $1 million will let you take quite a pay cut. If you define your retirement by "spending time doing what you love" instead of "no longer working," a lower-paying dream job may be your perfect retirement destination.

  • It's enough money to help you live your life for less. One of the ironies of the world is that the rich can live more cheaply that those without savings. Having money lets you negotiate cash discounts, avoid interest charges and not be tethered to payments. Plus, those with cash can often "invest" in more efficient ways to spend, through things like warehouse club memberships and more energy-efficient (though more expensive) cars, homes, and appliances.

Get Started Now

For most of us, the quest to end up with $1 million (or more) in retirement is a journey with a time frame measured in decades. Still, it's one where the more time you have until you need that nest egg, the easier and cheaper it will be for you to arrive successfully. There's no doubt that you'll be better off with $1 million in retirement than without it. And right now is your best time to start building and working through a plan to get you there.

Chuck Saletta is a Motley Fool contributing writer.

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