Can I retire with $2.5 million at 65?

SmartAsset: Is $2.5M Enough to Retire at 65?

For most people, retiring at age 65 will have little or no problem if they have $2.5 million in savings. This prudently invested amount of capital should suffice income for a lifestyle comfortable enough to satisfy a large majority of retirees.

And some variables that might change. These include an extended period of high inflation, a prolonged market downturn and unexpected healthcare costs. And it may also involve a longer-than-projected lifespan. However, surveys of retirees’ financial satisfaction suggest that even much lower sums are likely to pay for a comfortable retirement.

For answers to your retirement questions, speak to a financial advisor.

Retirement income of $2.5 million

A $2.5 million nest egg for retirement can likely yield $100,000 in annual income for as long as you’re likely to live. This uses the 4% payout rate which many consultants consider safe.

Once the first withdrawal of 4% of the total has started, the annual withdrawal will be adjusted for inflation. For example when inflation running at the 2% rate that is the goal of federal policy, the retiree will withdraw $100,000 in the first year of retirement, $102,000 in the second year, $104,040 in the third year, and so on.

According to this model and conventional wisdom, a 4% withdrawal rate will allow a portfolio to last at least 30 years. This would allow a 65-year-old retiree to maintain constant purchasing power into age 95 and beyond.

For most retirees, this will probably be enough to maintain a satisfactory standard of living. Only about 3% of 2,000 retirees surveyed Employee Benefit Research Institute In 2022, they were spending $7,000 or more per month, which equates to $84,000 in annual spending.

This model does not include a number of other factors. For example, almost all retirees are eligible for Social Security. For 2023 the maximum monthly social security benefit for those claiming benefits at full retirement age is $3,627. That’s more than half the spending of the top 3% of retirees surveyed by EBRI. And like the safe withdrawal rate, Social Security benefits are indexed to inflation.

Although it seems like $2.5 million is easily enough to retire at 65, many factors could change the outlook. These include medical costs, inflation, market volatility and life expectancy. Here are ways these variables might affect the possibility of retiring at 65 with $2.5 million.

Possible impact of healthcare costs

SmartAsset: Is $2.5M Enough to Retire at 65?

SmartAsset: Is $2.5M Enough to Retire at 65?

Although it’s 65 to be eligible for Medicare, that doesn’t mean retirees don’t have co-payments healthcare costs. Actually the Fidelity Retiree Health Care Cost Estimate suggests that the average 65-year-old couple might need $315,000 to cover post-retirement health care costs, assuming typical life expectancies. Most of this is due to co-payments, co-insurance and deductibles, according to Fidelity.

These additional costs could significantly reduce your income for other living expenses. For example, if you are a 65-year-old married couple, Fidelity estimates that you would spend an average of $15,750 per year or $1,312.50 per month on healthcare. You may need to reduce other expenses or increase withdrawals from your retirement account to cover them.

Possible impact of inflation

inflation can have a profound impact on the financial well-being of retirees. As inflation rises, it reduces the purchasing power of money withdrawn from your retirement account. You can increase withdrawals to maintain purchasing power, but doing so risks depleting the retirement fund sooner.

The problem is compounded by the fact that markets often fall during periods of high inflation. If ratings go down, you may need to sell more of yours portfolio to increase withdrawals so you can maintain your spending power and lifestyle. This can reduce your future ability to generate income.

Potential impact of market downturns

Inflation is not the only cause market declines. Business cycles and financial crises can exaggerate the normal fluctuations in stock market valuations. Whatever the reason, if you are selling your investments to generate income livelihoodThey need to sell more of these, ratings have gone down.

This approach can work for a while. But over the long term, selling at low valuations can end up depleting your nest egg faster than planned. This may require tightening one’s belt and lowering one’s cost of living to avoid selling in falling markets.

Possible impact of longevity

While long life is positive, it is possible to survive on the amount of money you have saved for retirement. Many financial planners use it Life expectancy up to age 95 or 100 in developing plans to finance retirement.

For most people, this will be more than enough. The Social Security Administration says an average 65-year-old man will live another 18.09 years to age 83. The average 65-year-old woman can expect to live more than two years longer and live to be almost 86 years old.

These are just averages, and about half of all 65-year-olds will live longer than these estimates. But even people in their 80s and 90s are generally reducing their spending, with the exception of healthcare costs.

If you have exceptionally long-lived parents, few health problems of your own, and generally healthy living habits, you can plan for a longer life retirement. According to Social Security, however, only 1,000 out of 100,000 men live to be 100 years old. And for women, it’s twice as many, but still just over 2,000 out of 100,000.

factor in estate planning

SmartAsset: Is $2.5M Enough to Retire at 65?

SmartAsset: Is $2.5M Enough to Retire at 65?

Retiring at age 65 with $2.5 million came with huge earnings and savings. For the rest of your life you may want to think about expanding your savings more. With estate planning, adding family members as beneficiaries for a home or vacation home that you’ve mortgaged off can have long-term positive effects. No mortgage to pay off later means more income to pursue other activities.

You may also want to think about additional income streams with your retirement accounts and set up beneficiaries where appropriate. And if you own a business, add your family as well beneficiary so they can decide to keep the business going or sell it can also be another strategy.

bottom line

A nest egg of $2.5 million should be enough for most retirees to enjoy a comfortable retirement for the rest of their lives. Variables that could affect this include health care costs, inflation, market downturns and life expectancy. But with widely accepted safe withdrawal rates, that much capital can generate an income that’s more than all but a small minority of retirees spend.

Retirement tips

  • A financial advisor can help you plan for a safe retirement at any age. SmartAsset’s free tool matches you with up to three verified financial advisors operating in your area, and you can interview your advisor matches for free to decide which one is right for you. When you are ready to find an advisor who can help you achieve your financial goals, get started now.

  • One of the most effective ways to reduce spending in retirement is to move to an area with a lower cost of living. SmartAssets Cost of Living Calculator can estimate how your cost of living will change if you move from your current location to another part of the country.

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