This week, I’m talking about whether or not $1 million is going to be enough for a comfortable retirement.

Today, let’s look at your investment portfolio and how that influences whether or not $1 million will be enough for you in retirement. 

Earlier this week, we looked at the 4% rule for retirement withdrawals - which provides a ballpark estimate of income that your portfolio can provide. Take 4% x your portfolio value and that tells you what you can withdraw in year 1 of retirement. So if you do the math, $1 million can provide about $40,000 in retirement income. 

But there is an important assumption built into this rule - and that is that you have a well-diversified portfolio that holds approximately 60% in stocks and 40% in bonds. 

What if your portfolio has a much higher allocation to stocks or a much lower allocation to stocks? Well, then the 4% rule doesn’t work as well. 

The problem with too much in stocks is that the bad years can be really bad with too much in stocks and take years to recover, which was the case in 2008-2009. So you may have to significantly cut your withdrawals, at least temporarily in economic and stock market downturns to protect the longevity of your portfolio and make sure your money will last in retirement. 

The problem with too little in stocks is that you have really no hope in keeping up with inflation. Especially these days with savings accounts, money markets, and bonds paying abysmal rates of interest. Over a 20-30+ year retirement, inflation is the silent killer that will eat away at your portfolio, so you’ll have to withdraw more each year just to keep up and maintain your same standard of living. If you don’t have enough in stocks to provide for the growth necessary to keep up with inflation, you may have no hope for maintaining a comfortable lifestyle in retirement. 

So the bottom line here is that $1 million can provide about $40,000 of income in year one in retirement, but usually only if you have a well-balanced portfolio of somewhere between 50-70% in stocks. 

That’s it for today, thanks for listening. Tomorrow, we’re going to recap the week and I’m gonna give you a little taste of next week’s theme.

My name is Ashley Micciche and this is the One Minute Retirement Tip. 

----------

>>> Subscribe on iTunes: https://apple.co/2DI2LSP

>>> Subscribe on Amazon Alexa: https://amzn.to/2xRKrCs

>>> Check out our blog: https://truenorthretirementadvisors.com/blog/

----------

Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast