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Why $1 million may not feel like enough

The 4% rule is a popular guideline for retirees to determine how much money they can live on each year without fear of running out later. It suggests that retirees can safely withdraw 4% of their investments (adjusted for inflation) each year in retirement.

“A million may seem like a lot, but many people are surprised when they do the math and realize that 4% of $1 million is only $40,000 yearly,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight. “This is usually quite a bit less than these individuals are likely used to living on.”

Given current market expectations, the 4% rule “may no longer be feasible,” researchers at Morningstar wrote in a recent paper.

“A lot of the rules of thumb we’ve been using are outdated,” Goodsell said. 

‘The name of the game is preservation’

At the same time, the average 401(k) balance is down 23% from a year ago to $97,200, according to the latest data from Fidelity Investments, the nation’s largest provider of 401(k) plans. 

“Maybe you have that $1 million but you’ve taken a 20% hit on it,” Goodsell said. “On top of that, prices are higher.”

To get an accurate picture of where you stand, “there’s no shortage of calculators online,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York. “Or meet with a financial advisor who can hopefully put you at ease or provide you with a plan to get you feeling better.”

“You can remove the guesswork,” said Boneparth, who is also a member of the CNBC Financial Advisors Council.

There are more millionaires in the U.S. and globally than ever before, with nearly 24.5 million millionaires nationwide as of 2022, according to the latest Global Wealth Report from the Credit Suisse Research Institute. Even so, having seven figures in the bank offers less security than it used to in the face of inflation and extreme market swings.

“That mark is easier to obtain but it may not deliver what we expect,” Goodsell said.

“People need to look at how much they have and take the time to do the math to see how long that will last,” he added. “The name of the game is preservation.”

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