Is $1.5 Million enough to retire or how much money is needed to retire comfortably in the US?
Up until now, people in the finance sector have always considered big figures, such as from $1 million to $2 million. However, by 2025, one figure keeps being mentioned and that is $1.5 million.
The phrase the new “magic number” of retirement savings has been coined regarding this amount. But is it the right figure? And most importantly, how can you determine when we come to talk about the amount of money
required for the comfortable living at the place where you live?
It really will not be true what you believe when you get the answer.
The $1.5 Million Retirement Rule
Having a sum of $1.5 million saved as a retirement goal, in general, means that this money is the amount which is intended to satisfy your living expenses, when mixed with the money provided by Social Security, and the total would be enough for you to live by, lets hope the time you are in retirement is at least more than 30 years of your life.
Now, equivalence is a little bit far from being correct when we talk about all states. Possibly, somewhere you hardly spend any money, while others are places where your funds likely will exhaust themselves quickly.
How We Estimated Longevity
Our first step in judging the length of time that $1.5 million could last in various places was determining three important factors:
- Annual average cost of living for retired people (covering the key elements of needs such as housing, food, healthcare, etc.)
- Annual benefit from Social Security, for example about $22,000.
- As the third step, the required amount of remaining expenses should be calculated.
Let’s go through it step by step.
Worst case scenario, you live in a state where retirement budget is about $50,000 per year, of which Social Security is only $22,000, therefore, you should have around $28,000 from savings in your yearly budget. At such a saving rate, it will be $1.5 million that can last more than 53 years.
But in a state as expensive as the one mentioned what if the living cost is $85,000 a year? There, the funds will need to be $63,000, from which we can infer that the savings will be used up in less than 24 years of retirement.
States Where $1.5 Million Lasts a Long Time
Your money can keep you going in the states where the cost of living is lower. Calculating as per the current rates of inflation:
- West Virginia: You will be able to make it last approximately 54 years
- Mississippi: It can stay for something around 51 years
- Oklahoma: It can be stretched to nearly 50 years
- Arkansas: More or less, over 49 years are possible
- Alabama: It may last something like 48 years
These states are usually characterized by the presence of lower housing costs, cheaper healthcare services, and overall lower living costs. They attract seniors who want to make their savings last as long as possible.
States Where $1.5 Million Might Not Be Enough
In stark contrast to that, there are states that are simply too pricey, especially for the elderly.
- Hawaii: 17-18 years at best
- California: About 24 years
- Massachusetts: It is almost 23 years
- New York: Only a bit less than 29 years
- Washington D.C.: Not even 25 years
If you are going to retire in a more expensive area, you might want to double your savings, planning to work past your retirement age or even consider downsizing.
Most Americans Are Unlikely to Have $1.5 Million
Here’s a very hard truth: Not many people, in fact, are in the vicinity of this figure.
Present statistics indicate the average 65-74 year-old American is in possession of less than a quarter of a million dollars in retirement savings. Most of them rely solely on Social Security benefits to get along.
So, if having $1.5 million may look like a shining path, the case is it is not for everyone.
Is It Possible to Enjoy Retirement Happy With Less?
Yes, but it is essential to be strategic.
The decision to live in a smaller house, to change the place of residence, to postpone retirement, and to control expenses—all these moves help one live comfortably yet simply. It is likely that some retirees can manage on less than $40,000 per annum and still partake in travel, hobbies, and saving money.
Ending thoughts
The “rule of a $1.5 million” is actually just a guideline and should not be taken as a must.
Some states will be ideal for a peaceful, worry-free life with such an amount of money, and with a bit of luck, you may also get a luxurious retirement. The same amount of money in other states would mean really tight budgeting or some creative planning.
The most important part of the process is to have your numbers and goals at your fingertips. Afterwards, you can devise a plan which is in accordance with your lifestyle not the one you have read in someone’s article.
If you are interested in state-by-state retirement cost breakdowns, then you will find the Retirement News hub very useful, as it is full of expert advice, calculators, and lifestyle guides tailored for future retirees and all, that without leaving the house.
