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  • Mark Fonville, CFP®

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


Is $2 million enough to retire at 60?

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


Yes, for some people, $2 million should be more than enough to retire. For others, $2 million may not even scratch the surface.


The answer depends on your personal situation and there are lot of challenges you'll face.


As of 2022, it seems the number of obstacles to a successful retirement continues to grow. From outpacing inflation to keep up with the rising costs of goods to weathering one of the worst bond markets in history, making your $2 million last seems to be getting harder and harder.


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


Even with a free cheat sheet, making your $2 million portfolio last through retirement is hard.


But, 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.


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


In this article, you'll find out if $2 million is enough to retire based upon different income needs.


We provide the results of five different case studies all updated for 2022. Each case study reviews a hypothetical couple with a different income need from their portfolio.



What You Will Learn:

  1. How to Stress Test a $2 million Portfolio With Monte Carlo

  2. Summary of Case Study Results

  3. Case Study 1 - $3,000 Monthly Income Withdrawal

  4. Case Study 2 - $4,000 Monthly Income Withdrawal

  5. Case Study 3 - $5,000 Monthly Income Withdrawal

  6. Case Study 4 - $6,000 Monthly Income Withdrawal

  7. Case Study 5 - $7,000 Monthly Income Withdrawal

  8. Conclusion


But, keep in mind that there is a big difference between knowing "if" you can retire vs. actually knowing "how" to make your money last in the first place.


To help avoid costly investment mistakes in retirement, be sure to read our comprehensive guide on how to invest in retirement.


Otherwise, keep reading to find out if $2 million is enough to retire at 60. I think you'll be surprised by the results!


How to Stress Test a $2 Million Portfolio with Monte Carlo


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 the likelihood of being able to enjoy a comfortable retirement without running out of money.


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 1,000 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 chart below is an example of Monte Carlo results and provides a hypothetical example of 1,000 simulations.


Example of Monte Carlo Probability
Monte Carlo Probability of Success

Each green line indicates a single hypothetical simulation where a 60 year old couple accomplished all financial goals in retirement without running out of money.


Conversely, the red lines indicate scenarios where the 60 year old couple ran out of money.


Based on these results, Monte Carlo can help you answer a lot of questions including:

  1. Do I have the right mix of investments?

  2. Am I withdrawing too much from my portfolio?

  3. Do I have enough money to live the lifestyle I want in retirement?

The tool can be used to determine the best course of action.


The example above reflects a Monte Carlo distribution for a 60-year old couple who wants to withdrawal $60,000 in year one inflating at 2.25% per year. They withdrawal the money from their $2 million portfolio over 32 years at an average rate of return of 5.32%. (Download Disclosures Here)


But, what if the couple wants to know what will happen if they increase their spending by $10,000 per year?


Here are the results:


Monte carlo simulation for retirement income distributions
Example of monte carlo simulation on a $2 million portfolio

Notice that their probability of success drops to 76%. As you can see, you can answer a lot of questions with such a powerful tool.


Whether you have $1 million in retirement savings, $2 million dollars, $3 million or more, Monte Carlo can be a great resource to help answer the toughest questions in retirement.


In the case studies below, we use the same tool to stress test the likelihood of $2 million lasting in retirement for a 60 year old.


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!


Case Study 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 2022 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 2022 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 2022.


Chart showing the probability of a 60 year individual and couple living to different ages in retirement.
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.


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


Five case studies helping determine if $2 million is enough to retire at 60.
After-tax withdrawal rate from a $2 million portfolio over 35 years.

As Mary and Joe's after-tax annual income need increases, the likelihood of their money lasting in retirement decreases!


Most investors would expect this. 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).


Said another way, $2 million may be enough to retire for some, but it's certainly not enough to retire for others.


That's why it's so important for individuals nearing retirement to create a personal retirement income plan and not rely on generalizations.


So many factors can change the results including tax rates, timing of social security, Roth conversion, income need, and portfolio rate of return.


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 Distribution


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, 2022

  • 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?
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 Distribution


In scenario two, Joe and Mary withdraw $4,000 per month from their $2 million portfolio. This is an increase of 33.33% from case study 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, 2022

  • 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?
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 Distribution


In scenario three, Joe and Mary withdraw $5,000 per month from their $2 million portfolio. This is an increase of 25% from case study 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: