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Investor’s column: How long will $1 million last in retirement? Not as long as you might think

What’s the number you dream of seeing in your account balance? What amount of money would give you financial freedom and security?

If you guessed $1 million, you are on the same page as more than half of Americans who responded to a recent survey. But while many spend much of their lives wishing they could be millionaires, a $1 million nest egg might not get you as far as you’d think.

Here’s why.

The silent retirement killer

Put simply, inflation erodes your money’s value. Inflation often has been nicknamed the silent retirement killer because so many people forget to account for it in their income planning.

Unfortunately, inflation is one of the few certainties in life. Over the last 50 years, the cost of goods and services has increased an average of 3.7 percent per year.

Let’s say inflation continues to average 3 percent a year. In 40 years, $1 million will be worth $306,000 in today’s dollars, and that’s probably not enough to buy you a comfortable 30-year retirement.

Inflation tends to happen so gradually that it’s hard to see the effects of it on your wallet year to year. But over time the effects become obvious.

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Tom Breiter is the president of Integra Capital Advisors, a registered investment adviser, in Bradenton.

Your ideal retirement

We can’t predict the future with certainty, but we can prepare based on historical data. Since you need your retirement savings to last as long as you do, implement these potential solutions in your financial plan.

Conservative withdrawal rates

Since we know that stocks historically have earned an average of around 8 percent a year, you might assume that you can afford to withdraw 7 or 8 percent of the initial portfolio value (plus a little more for inflation each year).

But in reality, to protect against the uncertainty of market fluctuations, you may need to limit your withdrawals to around 4 percent.

Because there is no simple, one-size-fits-all plan, you need to figure out what will work for you and your situation, taking various factors into account, such as time horizon, risk tolerance, asset allocation and unexpected expenses.

Build contingency plans

According to the Employee Benefits Research Institute, the average couple at age 65 will require anywhere from $151,000 to $255,000 just to cover their health care costs in retirement. Make sure to set up contingency funds over and above your regular retirement account to give yourself a buffer.

There will always be unexpected expenses in life, whether it’s needing a new car, home repairs, or long-term care expenses. A cash reserve will give you peace of mind.

Save more and spend less

The longer your planning horizon, the more resources you will need for retirement.

The most obvious way of lowering the risk of outliving your money is by saving more before you retire and spending less when you reach retirement.

If you have debt, focus on reducing it as much as possible so your resources can be devoted to saving or income in retirement.

Adjust expectations

Retirement often means major lifestyle changes. As a result, your expectations may need to change as well.

If you want a comfortable retirement, you may have to rethink how much you will be able to give your children as a down payment on a house or an inheritance.

One option is to move to a more affordable area. Cost of living varies drastically across the U.S.

When you are determining how much money you need for retirement, location can make all the difference.

For example, if you live in California, $1 million (in today’s dollars) will only last 16 years and 5 months, mostly due to real estate costs.

But, if you live in Michigan, it’s estimated that $1 million will last 25 years because of affordable housing and health care and utilities that fall below the national average cost.

Stay flexible and be willing to make adjustments in order to secure your financial future and stretch your wealth as far as possible.

Secure your retirement

It can be disheartening to look at the numbers and realize that what you were aiming for isn’t enough.

But by making small changes now and planning ahead, you can set yourself up to experience the retirement you dream of.

Tom Breiter is the president of Integra Capital Advisors, a registered investment adviser, in Bradenton. He can be reached at 941-778-1900 or by e-mail at