$1 million used to be the retirement dream. Now, it might not be enough
Idea
For years, $1 million was the number people had in their minds as the amount they needed to have a good retirement. Achieve this and you have succeeded in life. You will have peace of mind and you will not have to worry.
Piffle.
What I’m seeing now is that more people are getting closer to that number, or even reaching it, and instead of feeling secure, they’re feeling uncertain. They’re not stressed and they’re not struggling, but they’re certainly not as confident as they’d hoped that they were enough.
And the reason is quite simple. This figure no longer keeps pace with how retirement actually works.
A million dollar retirement still puts you in a strong position. But when you translate that into income, it starts to look very different from the old idea of “lifetime readiness.”
If you use a pretty standard drawdown approach of 5 or 6 percent, you’re probably looking at somewhere around $50,000 to $60,000 per year in the early years. Moreover, most couples will only receive a junior age pension at this level; which will be cut off entirely once assets rise above approximately $1,085 million. Singles lose access to the age pension of around $722,000 much earlier.
Doubling your pension won’t necessarily double your lifestyle.
When you combine the two, you’re typically looking at something more than $65,000 to $75,000 a year for a couple, depending on how you withdraw your super and what other assets you hold. A single person might aim for $55,000 to $65,000 and often not have much access to retirement unless they intentionally reduce their retirement benefits over time.
Compare this to the Association of Pension Funds’ criteria for a comfortable retirement and you quickly realize that couples need $77,375 and singles need $54,840.
This is the reality of what $1 million looks like today. A reasonable and feasible income. But this isn’t the kind of money that will make you feel like you can stop thinking about your decisions.
To see how this happens in real life, it is useful to compare two typical situations. Consider a couple in their early 60s with approximately $500,000 insured and paid off on their home.
At this level, they are still close to or above full-age retirement, which is just over $47,000 per year. They withdraw about $20,000 to $30,000 from retirement, giving them an income in the low to mid-$70,000s.
It’s not overdone, but it’s healthy. Retirement does most of the heavy lifting, and his superpowers complete it.
Now compare that to a couple with $1 million. They are in a much stronger position on paper. They doubled their savings. They may earn $50,000 to $60,000 a year in pensions, but because their assets are higher, a large portion of their annuities are reduced. What remains is a relatively small install of $6000-7000.
So their total income usually lands somewhere in the $60,000 to $70,000 range.
They have more capital behind them and more flexibility over time, but there is not a huge change in daily income. Conversely, it may be lower than someone with $500,000. This might really surprise people.
Doubling your pension won’t necessarily double your lifestyle. In this part of the system, it can feel as if it is barely changed at all. Part of the reason for this is how the system actually works.
If your assets are very small, an age pension does a really solid job of providing you with a basic layer of income. A couple gets just over $47,000 a year, including supplements, while a single person gets about $31,000. It’s not extravagant, but it’s clear, reliable, and gives you the foundation to build on other income.
On the other hand, if you have a lot of assets, you are largely self-funded. You have flexibility and actually don’t trust the system at all.
This is the middle part where things start to get less certain, and that’s where a lot of people are sitting right now; Especially for couples, around $1 million when you include pensions and other savings.
You have enough money to start losing your pension, but not enough to fully cover your own savings or even make up the shortfall in standard deduction rates. So as your balance increases, it doesn’t feel like a clean move. You get a little more out of your pension, but at the same time your pension is quietly decreasing in the background.
This taper is steady rather than abrupt, but it adds up. When you layer on the means test, where your savings are assumed to earn a certain percentage of whether or not they actually do, it becomes less obvious what you’re actually earning as your balance increases.
So the super money jump from $500,000 to $1 million, which seems significant on paper, often feels much smaller in real life. This is the part that catches people off guard.
At the same time, retirement itself has changed.
This generation isn’t planning on putting things aside and standing still. They want to travel, stay active, spend time with their family, and enjoy a phase of life that could actually last 25 or 30 years.
Spending does not necessarily have to decrease. Most of the time it just changes shape. So when people look at their numbers they just say, “Can we pass?” They don’t ask. “Can we live the way we want and keep doing it if things don’t go perfectly?” they ask.
These are two very different questions. And underneath all this lies a greater disharmony. We still talk about retirement as if it were built around a single number, as if you had a clear destination and everything was taken care of. But most people don’t retire that way anymore.
It’s not a clean stop. It’s more of a gradual change. People are shifting away from full-time work, earning part-time income, adjusting their spending, and tapping into different sources at different times. This is not a single decision. This is a series of them. And it changes as life changes.
Once you start looking at it that way, $1 million ceases to be the finish line. It’s just a number at one point along the way.
The people who seem most comfortable may not necessarily be those with the highest balances or those with a million dollars. They are the ones who understand how the system works, how their pensions, annuities and expenses fit together.
So yes, $1 million still matters. It gives you options and gives you a foundation to work from. If you have this don’t be disappointed! Know that this is no longer the point where everything falls into place. This is the point where you need to understand how to make it work.
Bec Wilson is the bestselling author How to Have an Epic Retirement and new releases Prime Time: 27 Lessons for the New Middle Life. Writes a weekly newsletter epicretirement.net and hosts prime time podcast.
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
Expert tips on saving, investing and making the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.
Bec Wilson is the author of How to Have an Epic Retirement and writes a weekly newsletter for pre- and post-retirees at epicretirement.net.
