When a Million Isn’t Enough

Posted by in Articles, personal finance | 22 comments

Bicycling SeniorsSaving for retirement is one of my goals for this year that I’m making progress on. I know that I’m getting a late start, but I have a bit of a cushion because I do expect to receive a pension upon retirement. However, my pension alone isn’t enough. And, according to an MSN article, I’m not the only one who may be a bit short come retirement. Not only that, the MSN article makes a point that $1,000,000 may not even be enough to retire on in some instances. Here’s the skinny on why a million may not be enough:

  • Once you begin drawing on your retirement accounts (401K, IRA’s, mutual funds, etc.) you have to pay taxes
  • The rule of thumb is to pull only 4% of your retirement savings. Depending on your cost of living at retirement, that figure may not be enough.
  • Seniors today are still paying off their mortgage (a huge drain on retirement funds)
  • Health care costs can be higher than expected


If retirement is still twenty or more years from now, like it is for me, there are some ways to minimize retirement costs and boost retirement savings. First, boosting savings is critical to make sure that retirement funds are well padded. The first step is to create a budget (almost always the first step to increasing savings and/or cutting expenses). This year, I’m working on saving 12% of my income with 5% allocated to retirement. This figure will have to increase within the next 5 years so I can save at least 10-12% of my income just for retirement. I’m predicting the missing 5-7% will come from additional income (ie. a raise or increase in passive income). Currently, my retirement savings are deposited into a higher return account, like a mutual fund. Once I increase my retirement amount to 10-12%, the additional 5-7% will be allocated to a 403(b) in my case (the equivalent to a 401K). To summarize boosting my retirement savings, this is what it will/or does look like:

  • 5% currently deposited into a mutual fund
  • 6% currently deposited into my pension plan plus an employer match
  • 5-7% to be deposited into a 403(b) in the near future

I’m counting my pension plan in my summary here but I don’t have any control over the allocated amount, so I don’t count it in my total 10-12% figure.

Next, I need to make sure that my expenses are greatly reduced come retirement. Since the MSN article mentioned that mortgage payments are taking a big bite out of retiree’s funds, my number one goal is to be mortgage and/or rent free. Since I don’t own a house yet, I have a couple of options; A.) purchase a house and pay it off before retirement by making additional mortgage payments, B.) find alternative ways to live rent/mortgage free such as building a tiny house, or C.) live cooperatively with other family members and friends (my husband would be dead set against this) to minimize housing costs.

Health care expenses also seem to make or break a retirement account. I feel I have some control over my health by eating healthy, exercising, and taking preventative measures to stay fit and agile. Of course, there’s always the unforeseen disease that I can’t control. Making sure I have access to affordable healthcare will hopefully reduce expenses.

Finally, eliminating excessive debt will allow me to live off 4% of my retirement savings each year. Paying off student loans and any credit card debt (thankfully I don’t have any credit card debt now) a few years before retirement will be essential to making that money last.

My goals for reducing expenses before retirement are as follows:

  • Be mortgage and/or rent free
  • Stay fit and healthy (eat right and exercise!)
  • Pay down all debt a few years before retirement

If I were to create a time line of events for my retirement path, it would look like this:

Save 5% toward retirement in 2011 => keep saving! => purchase or build a house by 2014 => keep saving! => increase retirement savings by an additional 5-7%  by 2016=> pay off student loans (this is my only debt right now) by 2021 => keep saving! => increase mortgage payments to be mortgage free by 2031 => keep saving! => retire by 2036

That looks doable!

I love timelines. ;) Notice, however, I haven’t crunched any numbers. That step will come within the next couple of years. Then my timeline will be more robust!

What does your retirement path look like?

22 Comments

Join the conversation and post a comment.

  1. MoneyCone

    Excellent point on paying off your mortgage before retiring. That indeed takes up a chunk of your income.

    I too think a million isn’t enough!

    • Little House

      @Money Cone – I think a million can be enough, but only if the large expenses are taken care of, like the mortgage being paid off. And, if the cost of living in an area is affordable. ;)

  2. Miss T @ Prairie Eco-Thrifter

    I agree. A mortgage can be a huge limitation in retirement. We are hoping to pay ours off in the next 10 years. We shall see how we do.

  3. krantcents

    My retirement horizon is relatively short (6 years), but I managed to put away a lot and I am maxing out my 403B, IRA and Roth IRA. When I retire, I will receive a small pension, Social Security for my wife and me. This covers my basics and the IRAs et al cover the luxuries. I have no debt except for a small mortgage and it will be paid off by then.

  4. Squirrelers

    A million dollars when I plan to retire will have far, far less purchasing power than a million dollars does today. I look at it as a matter of really working hard to maintain positive cash flow and keep expenses low, maximizing savings for as many years as possible. Being debt free and healthy are great ways to help make that happen.

  5. cashflowmantra

    While it is probably true that $1 million may not be enough, I am surprised at the number of people who fail to see that CDs and bonds aren’t the only investments for paying retirement expenses. Where I live, $1 million will purchase 10-12 single family homes for cash. Let’s assume that 10 are purchased for $95,000 each leaving $50,000 cushion for the broken furnace.

    I know that these places will rent for $900 per month. That would be $108,000 yearly gross minus 5% vacancy minus 5% maintenance minus 7% management company (don’t want to wake up in middle of night to fix the toilet during retirement now do we) minus another 5% expenses for taxes and insurance and you are still left with about $84,000 per year or 8.4% return on investment.

    That is far better than a 4% withdrawal rate and you aren’t even having to touch the principle.

    • Little House

      @Cash Flow Mantra -You make a good point. However, to play the devil’s advocate, years ago my uncle did something similar. He purchased a bunch of rental properties (about 10) with the idea that these would be his retirement income. However, he didn’t manage them very well; he didn’t do credit checks, he made all the repairs himself (working endless hours while still working full time), and in the end the properties ended up being way more of a headache than a stream of income. Now, I’m sure that if you go about it the right way, it can all work out to be just fine. (I know someone who owns just as many properties and is making a fortune at it and has a management company handle the rentals). But, I think that owning so many properties takes a lot of organization.

  6. Andrew @ 101 Centavos

    I like the idea of a tiny house on a small parcel of land. You can minimize many of your living expenses that way.

    • Little House

      @Andrew – I like that idea too, I think that’s why I love Tumbleweed homes so much (or at least the idea of them!) I have another article bouncing around my head about someone who built a tiny home in the mountains surrounding LA (I found him through the WestWays magazine). I’ll have to post on that soon!

  7. Elle

    We would like to have our mortgage paid off before retirement as well. We contribute to our retirement fund, but once our student loan is paid off, we’ll get more aggressive with our IRAs.

  8. Well Heeled Blog

    I don’t really have a more detailed plan than to save as much as I can right now, and in the future try to pay off my loans as fast as I can! Also, buying a house (preferably 1-story with universal design) and having it paid off by the time I am near retirement will be a huge part of my strategy.

    • Little House

      @Well Heeled Blog – I think that’s a solid plan. Since I’m a little behind, I really need to crunch some numbers soon and see how much more I might need to contribute to make retirement a reality! Then, my plan will be even more detailed. ;)

  9. Sheila

    Thank you for sharing your 3 goals for reducing expenses before retirement. They’re very important goals to reach before finally retiring. I’m working on the second goal at the moment. 3rd goal’s done October last year. Yay!

  10. Little House

    @Sheila
    That’s terrific! Going into retirement debt free will allow you to stretch that money out over time. Congratulations!

  11. Buck Inspire

    Nice article. Scary a million might not be enough. Don’t have a detailed plan or timeline. Never too soon to start. Sad to hear about your uncle and his headaches, but looking for a passive income stream would help that 4% draw. Do you consider your blog a revenue generator or a hobby? Thanks again!

    • Little House

      @Buck Inspire – I started my blog as a hobby, but it’s great that it’s now earning a little money. Though it’s definitely not passive! But, if I keep at it, it might eventually add to my retirement funds and help me meet my retirement goal! Now that would be nice. ;)

  12. First Gen American

    I’ve been in the full time professional workforce for 15 years now and in my mind, I’m 1/2 way to retirement already. I really don’t want to work more than 30 years fulltime..I’ve been working some job since I was 11, so I’m pretty sure I’ll be sick of working by then.

    The shift I’ve made recently is that every decision I make moving forward should be made with retirement in mind. For example, my husband wants to move to a better school district. I really don’t want to move and then move again come retirement. I thought a good compromise is to wait a few years and then move to a place where we’d like to retire that also has a good school district. I also don’t want to move somewhere that has super high property taxes as that is a fixed expense I can’t change easily.

    • Little House

      @First Gen American – That’s a good plan. I’m also assuming you’d still have to be close enough to get to work as well. Does that limit your retirement options? I know that for myself, Mr. LH has already said he only wants to move one or two more times, max! That means that we need to find the city we plan on retiring in within the next couple of years and get serious about purchasing property. I don’t want anything too big (obviously), but I also want to make sure we have enough room in case we do expand our family. Oh, decisions, decisions. But thinking about retirement now, means that we won’t have to make too many accommodations later.

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