I am 62 years old and have $1.2 million in savings. Is that enough for a stress-free retirement?

Retirement is a huge milestone and one of the biggest questions people face is whether they have enough savings to live comfortably.

If you’ve managed to save $1.2 million down to $62, you’re probably wondering if it’s enough to see you through your retirement years. But more importantly, will this nest egg allow you to live a life without financial stress? The answer depends on your spending habits, health and how long you expect to live.

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A hypothetical scenario

Let’s say you’re 62, still working and planning to retire soon with $1.2 million in the bank. According to the Bureau of Labor Statistics, the average household headed by someone 65 or older spends about $52,141 a year. That’s just over $4,345 a month in living expenses. With that as a point of reference, the question becomes: Will it last you $1.2 million?

How the 4% rule fits.

A common strategy that retirees use is the 4% rule, which suggests withdrawing 4% of your retirement savings each year. Based on this rule of thumb, $1.2 million would give you about $48,000 a year or $4,000 a month. It’s close to average pension spending, but doesn’t leave much wiggle room for extras.

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Addition to social security

Don’t forget Social Security. The average monthly benefit for retired workers in 2024 is $1,919.40. Combining that with the $4,000 in your 4% withdrawals, your total income could be around $71,033 a year – putting you above the average retiree’s expenses. Of course, your actual Social Security benefits will depend on factors such as when you start claiming them and your work history. If you delay taking Social Security until age 70, you can even increase those benefits.

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Health care costs to consider

Health care is one of the biggest wild cards in retirement. Fidelity estimates that a 65-year-old couple retiring in 2024 will spend about $165,000 on medical expenses in their retirement years. That’s about $3,300 per year per person, a cost to consider. If you’re healthy, this might not be a big concern, but if you have health issues, it could become a bigger part of your budget.

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The impact of inflation and longevity

Another key factor is inflation. Historically, inflation has averaged about 2.5% per year. 20 or 30 years into retirement, this can affect the purchasing power of your savings. Plus, people are living longer. Life expectancy for a 62-year-old today stretches to 80, and many live even longer. The longer you live, the more you’ll need to stretch your retirement savings.

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Does $1.2 million provide enough of a cushion?

So does $1.2 million give you enough of a cushion? For many, it is. Your savings and Social Security income could comfortably cover your living expenses. However, there are a few things that could change this picture:

While $1.2 million is a strong starting point, whether it’s enough for a completely stress-free retirement depends on your unique circumstances.

You should be in a good position if you keep your expenses under control, consider Social Security, and plan for potential medical expenses. However, it’s always a good idea to talk to a financial advisor to create a plan tailored to your needs, just to make sure you’re fully covered for years to come.

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