July 30, 2004  Email this  Print this
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$1 Million Nest Egg May Not Be Enough
by Kimberly Lankford  If I save $1 million for retirement, will that be enough? A nest egg of $1 million may be enough if you've paid off your home, live in a low-cost area and have a big pension. But a lot of people will need more money than that.
"The $1 million will safely generate $40,000 per year, so if you're comfortable living on $40,000 plus your other income sources, then it's enough," says Stuart Ritter, a certified financial planner with T. Rowe Price. "If you want more money to spend, then it isn't enough."
Ritter's "safe" $40K per year figure is based on a number of assumptions: First, the $1 million is kept in a portfolio of 40% stocks, 40% bonds and 20% cash; you retire at 65; you live to be 95; and inflation averages 3%. Considering these factors, and hundreds of market scenerios, your $1 million stands a 90% chance of lasting as long as you do.
If you think you'll need more money, you can crunch your own numbers. Step one is estimating how much you'll spend annually in retirement. Then work backwards to calculate how much of a nest egg you need to amass. T. Rowe Price's retirement income calculator can show you the likelihood that you'll outlive your nest egg at the pace you expect to spend each year. Our Am I Saving Enough?" calculator can also help.
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