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


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.


Even with the same checklist we use to help clients retire (download free), making $2 million last through retirement is hard.


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


Download our powerful retirement checklist for more helpful tips and strategies to help make your $2 million dollars last in retirement (new for 2021)

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.


Other factors that can hurt your chances of success include fluctuating tax rates, portfolio rates of return, and the amount of income you need to maintain your lifestyle in the first place.


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


Even worse, social security benefits may only cover 20-40% of your income in retirement. And many 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.


In addition to the hurdles above, there dozens of other key issues to consider before you retire.


So, where do you start? Keep reading as things get interesting from here.


Note: How you manage taxes in retirement can make a huge on maintaining your lifestyle when you do retire. For those interested, we are holding a powerful webinar on how tax planning changes through 4 stages of retirement. It's an online workshop on how to pay less taxes in retirement. It's free and you can register here.



How to Analyze Portfolio Withdrawal Rates


When it comes to projecting income in retirement, the best financial advisors for retirement 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.


The probability of success below is an example of Monte Carlo results.

Monte Carlo Probability of Success

Based on these results, Monte Carlo can help you decide the best course of action, particularly as it relates to determining how long $2 million will last in retirement.


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 scenarios where the 60 year old ran out of money.


Example of Monte Carlo Simulation for Retirement

But, to determine if $2 million is enough to retire at age 60, you must include many factors such as:


  • Your monthly income need

  • Growth rate 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!



Is $2 million enough to retire at 60?


Joe and Mary Schmoe celebrated their 35th wedding anniversary last weekend.


Their love carried them through a few moves, a few more careers, and two lovely children.


In 2021 they will each turn 60 years old. Dreams of retirement in a small town by the lake and making their $2 million last 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 age 95!


I know what you’re thinking.


Planning to age 95 seems like a long time. Right? As it turns out, a 60 year old married couple in 2020 has a 30% 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

To help us find out if $2 million is enough to retire at age 60 for Mary and Joe, we analyzed five different case studies.


Each case uses the following assumptions:

  • 35 years of portfolio withdrawals

  • Tax rate after withdrawals begin is 20%

  • Income withdrawal increases every year at 2.25% to account for inflation

  • Average projected return is 5.45% per year

The only adjustment we made to each case study was the amount of annual withdrawal from the portfolio. This reflects differing income needs based upon lifestyle.


The data below summarizes the results for each of our five hypothetical case studies.


After-tax withdrawal rate from a $2 million portfolio over 35 years.

As you can see, $2 million is enough to retire for some people, but it may not be nearly enough for others.


In the chart, we notate the monthly after-tax withdrawal amount from a $2 million portfolio and provide the probability of the money lasting 35 years in retirement.


As Mary and Joe's after-tax annual income need increases, the likelihood of their money lasting in retirement decreases! But, what's most shocking is that three of the four case studies have a high probability of running out of money (less than 70% success rate).


That's why it's so important for individuals nearing retirement to create a personal retirement income projection and not rely on generalizations. So many factors can change the results including tax rates, income need, and rate of return to name a few.


Everyone is different and the results for your situation could be far worse or better.


It all depends.


Those are the results at a high level. Now, let’s dive in a bit deeper by analyzing 5 scenarios with differing income needs starting at age 60.



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


The first scenario provides Mary and Joe $3,000 per month of income from their $2 million portfolio. This is income they will need above and beyond any other sources such as social security or pensions. The money must last until they each reach age 95.


Here are some additional assumptions for case study 1:

  • Starting portfolio value: $2 million dollars

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

  • Retirement age: 60

  • Retirement start date: January 1, 2021

  • Retirement time horizon: 35 years

  • Portfolio mix: 60% stocks 40% bonds

Using Monte Carlo Simulation, the probability that their money will last 35 years is 96%. With such a low withdrawal rate, their money has a very high probability of lasting throughout retirement as outlined in figure 1 below.


Figure 1

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

(Source and data disclosures: Case study 1)




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


In scenario two, Joe and Mary withdraw $4,000 per month from their $2 million portfolio. This is an increase of 33.33% from scenario 1. This is income they will need above and beyond any other sources such as social security or pensions. The money must last until they each reach age 95.


Here are some additional assumptions for case study 2:

  • Starting portfolio value: $2 million dollars

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

  • Retirement age: 60

  • Retirement start date: January 1, 2021

  • Retirement time horizon: 35 years

  • Portfolio mix: 60% stocks 40% bonds


Monte Carlo Simulation shows that the probability of the money lasting through retirement decreases to 87%. This is not a low probability. But, probability of success decreased from scenario two due to the increase in retirement income drawdown.


Figure 2

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

(Source and data disclosures: Case study 2)


Curious about having us help you plan for retirement? You can learn more here. If you’d like to learn more about avoiding big money mistakes in retirement, we provide a selection of powerful ebooks, guides, and checklists.


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


In scenario three, Joe and Mary withdraw $5,000 per month from their $2 million portfolio. This is an increase of 25% from scenario 2. This is income they will need above and beyond any other sources such as social security or pensions. The money must last until they each reach age 95.


Here are some additional assumptions for case study 3:

  • Portfolio value: $2 million dollars

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

  • Retirement age: 60

  • Retirement start date: January 1, 2021

  • Retirement time horizon: 35

  • Portfolio mix: 60% stocks 40% bonds

Scenario 3 depicts a higher monthly income 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, spending more money brings the probability of running out of money down to 69%! This is a huge drop from Scenario 2 which is 87%.


The 18% difference is nothing to scoff at and can have a huge impact on their ability to make their savings last.



Figure 3

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

(Source and data disclosures: Case study 3)


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


In scenario four, Joe and Mary withdraw $6,000 per month from their $2 million portfolio. This is a 20% increase in income need from scenario 3. This is income they will need above and beyond any other sources such as social security or pensions. The money must last until they each reach age 95.


Here are some additional assumptions for case study 4:

  • Starting portfolio value: $2 million dollars

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

  • Retirement age: 60

  • Retirement start date: January 1, 2021

  • Retirement time horizon: 35

  • Portfolio mix: 60% stocks 40% bonds


If Mary and Joe withdraw $6,000 per month for 35 years, the probability of their money lasting through retirement decreases to 50%.


Scenario 4 creates a real concern for Joe and Mary. Their higher lifestyle creates a need for greater income. As a result, their $2 million portfolio only funds their retirement income needs 50% of the time across 1,000 simulations.


Figure 4

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

(Source and data disclosures: Case study 4)


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


Our final case study illustrates the most aggressive income need for Joe and Mary at $7,000 on an after-tax basis. Unless a miracle happens, Joe and Mary will almost certainly run out of money if they retire at age 60 with $2 million. Taking income of $7,000 per month is a 233% increase from case study one.


Here are some additional assumptions for case study 5:

  • Portfolio value: $2 million dollars

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

  • Retirement age: 60

  • Retirement start date: January 1, 2021

  • Retirement time horizon: 35

  • Portfolio mix: 60% stocks 40% bonds

With an income need of $7,000 per month, the probability of $2 million lasting 35 years in retirement tumbles to 30%!


Figure 5

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

(Source and data disclosures: Case study 5)


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 to retire at 60?" may actually be 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 for actually making it happen!


But, where do you start?


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


To help, you can access our library of powerful retirement checklists including:


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.


Download our powerful retirement cheat sheet for more helpful tips and insights - new for 2021!


Conclusion


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


Likelihood of successfully withdrawing income from a $2 million portfolio in retirement.

While monte carlo is a great tool to help determine if your money will last, there are many factors that go into determining the amount of money you need to retire at age 55, 60, or 65.


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, order in which you withdraw money from your accounts, 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 retirement income strategies well beyond the scope of this article.


At Covenant Wealth Advisors, we take the time to get to know you and understand your priorities and values. We’ll help you create a financial plan that accomplishes your retirement goals and helps make your money the rest of your life.


We are independent Certified Financial Planners who operate on a fee-only basis; meaning we never receive commissions for product sales. Additionally, we serve as a fiduciary which means we are required by law to always put your best interests and objectives at the forefront. We can help you find the right retirement strategies to conserve your wealth and the right investments to achieve your goals.


Need help making your money last in retirement? Get in touch with us

Mark Fonville, CFP®

Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors, an award winning wealth management firm serving clients in Richmond, Williamsburg, and virtually nationwide.


Schedule a free retirement consultation with Mark

Disclosures: 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