• Mark Fonville, CFP

Is $2 Million Enough To Retire At 60? [Case Study]

Updated: Feb 16


Is $2 million enough to retire at 60? It’s an important question to ask.


The truth is, research shows that the fear of outliving retirement savings is one of the biggest concerns crippling pre-retirees and new retirees alike.


The significance of making sure $2 million is enough to retire becomes even more important at age 60.

Why?


With improvements in healthcare, people are living longer. That means you'll need to plan for at least 30 years or more of sustainable portfolio income.


But, while two million dollars may seem like a lot, there are big hurdles to jump over to make sure your money lasts the rest of your life.


Unfortunately, social security benefits may only cover 20-40% of your income in retirement. And most smart retirees delay taking social security until age seventy to maximize benefits. As a result, annual income need from your $2 million portfolio can be much higher from age 60 to 70. At least until you start taking social security.


So, where do you start?


When it comes to projecting income in retirement, the best financial advisors often use a retirement calculator called Monte Carlo Simulation.


If you're like many of our clients, the term "Monte Carlo" may take your mind to a seaside town in France as you enter one of the most famous casinos in the world. Unfortunately, the Monte Carlo we are referencing isn’t as glamorous. But it does a much better job at projecting retirement outcomes with a high probability of success.


At Covenant Wealth Advisors, we use Monte Carlo to help us estimate the probable outcomes of money lasting in retirement for clients.

Monte Carlo simulation works by running thousands of possible stock market return scenarios by altering variables input into the tool.


The result is one number that represents the probability of making your money last in retirement.


Based on these results, Monte Carlo can help you decide the best course of action, particularly as it relates to determining if $2 million is enough to retire at 60.


The chart below is a great visual of how we stress test the likelihood of $2 million lasting in retirement for a 60 year old.


The green lines indicate a single hypothetical simulation where a 60 year old accomplished all financial goals in retirement without running out of money. Conversely, the red lines indicate the scenarios where the 60 year old did run out of money.


Example of Monte Carlo Simulation for Retirement

But, determining if $2 million is enough to retire at age 60 must including many factors such as:


  • Your monthly income need

  • Expected returns on your money and investments

  • Your life expectancy in retirement (maybe 30 years or more)

  • Federal and state tax rates

  • Additional considerations outside the scope of this article include: Social security benefits, healthcare expenses, additional spending needs such as vacation and cars.

Once you have accurate financial facts gathered, we can stress test the data thousands of times to determine your likelihood of success.


Technology has come a long way, right?


Your life, finances, and of course stock markets, are subject to change, and Monte Carlo Simulation helps paint a picture of possibilities—everything that could happen to prepare you for what could happen.


So, let's find out if $2 million is enough to retire at age 60.


I think you’ll be surprised by the results!


Case Studies: Is $2 million enough to retire at 60?


Mary and Joe Schmoe celebrated their 40th wedding anniversary last weekend.


Their love carried them through a few moves, a few more careers, and two lovely children. As they near 60, dreams of retirement in a small town by the lake become their main focus.


It is time for them to enter a new chapter of their lives, together. Both in pristine health, they will need their money to last up to 35 years or until 95!


I know what you’re thinking.


Planning to age 95 seems like a long time frame. But as it turns out, a 60 year old married couple has a 40% chance of at least one individual living to age 95!


The chart below illustrates the probability of living to different ages for a 60 year old in 2020.


Mortality Table for 60 Year Old Individual and Couple

Will Mary and Joe's portfolio be able create the income they need without running out of money?


Let’s find out by analyzing 5 scenarios with differing income needs.


Case Study 1: $2 Million Portfolio with $3,000 After-Tax Income Need


  • Retirement age: 60

  • Retirement length: 35 years

  • After-tax portfolio income per month: $3,000

  • Portfolio value: 2 million dollars

  • Portfolio breakdown: 60% stocks 40% bonds


This option provides Mary and Joe a $3,000 per month income stream until they are age 95.


Using the Monte Carlo Simulation, the probability that their money will last them 35 years is 97%.


Under these conditions, their money has an extremely high probability of lasting them through retirement as outlined in figure 1 below. (Source: Covenant Wealth Advisors Monte Carlo Analysis)


Figure 1

Figure 1: Is $2 Million Enough To Retire At 60?

Case Study 2: $2 Million Portfolio with $4,000 After-Tax Income Need


  • Retirement age: 60

  • Retirement length: 35 years

  • After-tax portfolio income per month: $4,000

  • Portfolio value: 2 million dollars

  • Portfolio breakdown: 60% stocks 40% bonds

In this scenario, Mary and Joe withdraw $4,000 per month for 35 years.


The Monte Carlo Simulation shows that the probability of the money lasting through retirement decreases to 87%.


This is not a low percentage but it is starting to become riskier. Please see Figure 2 for more information. (Source: Covenant Wealth Advisors Monte Carlo Analysis)


Figure 2

Figure 2: Is $2 Million Enough To Retire At 60?

Case Study 3: $2 million Portfolio with $5,000 After-Tax Income Need


  • Retirement age: 60

  • Retirement length: 35

  • After-tax portfolio income per month: $5,000

  • Portfolio value: 2 million dollars

  • Portfolio breakdown: 60% stocks 40% bonds

Scenario 3 depicts a higher monthly allowance for Mary and Joe.


By taking $5,000 after-tax each month, the likelihood of that money lasting 35 years continues to decline.


In this case, it brings the probability down to 66%!


This is a huge drop from Scenario 2 at 87%.


The 21% difference is nothing to scoff at and can have a huge impact on their ability to have enough savings.


Take a look at Figure 3 for more information. (Source: Covenant Wealth Advisors Monte Carlo Analysis)


Figure 3

Figure 3: Is $2 Million Enough To Retire At 60?

Case Study 4: $2 Million Portfolio with $6,000 After-Tax Income Need


  • Retirement age: 60

  • Retirement length: 35

  • After-tax portfolio income per month: $6,000

  • Portfolio value: 2 million dollars

  • Portfolio breakdown: 60% stocks 40% bonds

These scenes are based on the amount of money Mary and Joe want to have each month.


As the number taken out goes up, the probability of the funds lasting goes down.


This same model holds true for Scene 4.


If they take out $6,000 per month for 35 years, the probability of that lasting through retirement decreases to 47%.


See Figure 4 for more details. (Source: Covenant Wealth Advisors Monte Carlo Analysis)


Figure 4

Figure 4: Is $2 Million Enough To Retire At 60?

Case Study 5: $2 Million Portfolio with $7,000 After-Tax Income Need


  • Retirement age: 60

  • Retirement length: 35

  • After-tax portfolio income per month: $7,000

  • Portfolio value: 2 million dollars

  • Portfolio breakdown: 60% stocks 40% bonds

Our last scenario depicts the highest monthly allowance Mary and Joe have taken.


Based on the results from the previous scenarios, it would make sense if the probability was the lowest in scenario 5. And that would be correct.


At $7,000 per month for 35 years, the probability of that money lasting through retirement stumbles to 29%!


Let’s take a look at Figure 5 to see the breakdown. (Source: Covenant Wealth Advisors Monte Carlo Analysis)


Figure 5

Figure 5: Is $2 Million Enough To Retire At 60?

How to Make $2 Million Last in Retirement


You may be thinking, "wow, based on these assumptions, I'll be okay".


Here's the problem: "Is $2 million enough for retirement?" is actually the wrong question to ask in the first place!


You should be asking, "How can I make $2 million last in retirement?" When you rephrase the question, you may put yourself in a better position of actually making it happen!


There are a lot more questions to consider when it comes to thinking about retirement that may significantly improve your odds of success.


They include:

  • How should I invest in retirement?

  • When should I take social security?

  • When should my spouse take social security?

  • In what order should I draw down my assets in retirement – IRAs first, Roth IRAs first, Taxable accounts first, all equally,….?

  • Where should I position my investments in retirement? For example, should bonds go in tax-deferred, tax free, or taxable accounts?

  • What income spending strategy should I use? Guardrails, ratcheting, floor and ceiling rule, boundaries?

  • How should I rebalance my portfolio? Annually, rules based on variance of asset classes, glide path rebalancing?

  • How do I factor in lump sum needs such as car purchases, travel, healthcare costs inflating at a different rate than other costs, potential nursing or long-term care expenses?


The truth is, making your $2 million last from age 60 onward isn’t easy. But, it is possible and even highly probably if coordinated the right way.


Conclusion


In the case of Mary and Joe, the more money they withdrew from their portfolio per month, the less likely their $2 million would last through retirement.


But, there are many factors that go into determining the amount of money you need to retire at age 60.


Two million dollars might be enough for some people, but others may require $1 million, $3 million, $10 million, or more.

It all depends on your lifestyle and the strategies you follow.


If you have $2 million and want to retire at age 60, it is important to start with your desired lifestyle and how much that lifestyle will cost you. This will help determine the amount of money you should have in your accounts.


But the amount of money you have is just one piece of the puzzle.


It is important to consider the age you want to retire, your life expectancy, and how your portfolio is invested.


Additional variables such as your tolerance for investment risk, social security income, pensions, taxes, and many other financial factors can impact whether or not $2 million will be enough to retire at 60.


Making your money last in retirement requires discipline, a well-structured portfolio, and tax-efficient investment strategies well beyond the scope of this article.


But, hopefully you have a clearer idea of whether or not $2 million dollars is enough to retire at 60 years old.


So, what questions do you have? Do you need help creating a personalized plan for your situation?


Shoot us an email at info@mycwa.com or call us at (757) 259-0111. We advise individuals all across the country.


Mark Fonville, CFP®

Mark is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors, an independent wealth management firm and fee-only financial planner in Williamsburg and Richmond, VA.


Read Mark's bio

Disclosures: Covenant Wealth Advisors is a registered investment advisor. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions.

This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account.


Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like accounting, tax or legal advice, you should consult with your own accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.


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Covenant Wealth Advisors is a fee only financial planner and registered investment adviser with offices in Richmond, Va and Williamsburg, Va. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. *AUM as of June 30, 2018