Retire with a million dollars

So, we all have heard variations of retiring with a million dollar.

Version 1: Without society security, you will need a million dollar saved up for retirement.

Version 2: If I have a million dollar, I will retire.

Version 3: I want to retire by age X, I will work and save. At age X, I will have a million dollar and move to an island.

Many other versions exist...

So, today, I got curious, what does a million dollar really mean?

Age	Years in Retirement	Withdrawal	Account Value
64	0	$ -	$ 1,000,000.00
65	1	$ 87,345.51	$ 976,540.31
66	2	$ 89,092.42	$ 949,569.24
67	3	$ 90,874.27	$ 918,803.62
68	4	$ 92,691.75	$ 883,939.70
69	5	$ 94,545.59	$ 844,651.70
70	6	$ 96,436.50	$ 800,590.27
71	7	$ 98,365.23	$ 751,380.80
72	8	$100,332.53	$ 696,621.64
73	9	$102,339.18	$ 635,882.23
74	10	$104,385.97	$ 568,701.00
75	11	$106,473.69	$ 494,583.23
76	12	$108,603.16	$ 412,998.67
77	13	$110,775.22	$ 323,379.09
78	14	$112,990.73	$ 225,115.55
79	15	$115,250.54	$ 117,555.55
80	16	$117,555.55	$ 0.00

So, the above table assumes several things. The biggest assumption is an annual inflation rate of 2%. This is probably on the low end. It also assumes that your investment would earn a rate of return of 7%.

This means that if my 65^th birthday is tomorrow. I have a million dollar at the bank right now. I could withdraw an annual income of $87K. But this assumes that I will only live till age 80. Now, if I live till age 85, I could withdraw an annual income of $73K. Each year after, I will be allowed to give myself a raise equal to the rate of inflation.

So, $70-80K sounds pretty good… but it gets more complicated…

One word: Inflation.

If I am only 30 years old now, $87K at age 65 is the equivalent of a $43K salary. Okay, so I may have totally confused you. Let me rephrase. If I earn $43K today, and give myself a raise each year equal to the rate of inflation (2%), next year, I would earn near $44K. The year after, near $45K, so on and so forth. But, this “raise” is artificial. Since, even though the income is higher, stuff cost more due to inflation. So, your purchasing power does not change. So, $87K 35 years from now has the purchase power of $43K.

Hmm… interesting… That’s what a million dollar means…

Disclaimer: I am not a financial advisor. This is ONE scenerio.