I Have $1 Million in a 401(k) and Will Receive $2,500 Monthly From Social Security. Can I Retire at 65? (2024)

Eric Reed

·8 min read

I Have $1 Million in a 401(k) and Will Receive $2,500 Monthly From Social Security. Can I Retire at 65? (1)

Do you have enough money to retire?

There are many different ways to look at this, but the most common is to break it down simply: money in vs. money out. How much income can you generate from your retirement planning, and how much will you need to spend?

Here, say that you have $1 million in a 401(k) or IRA, and expect to receive $2,500 per month in Social Security payments, a number right in the mid-range of possible benefits.Can you retire at 65?

Well, it certainly depends on your standard of living. But for most people the answer is yes. This should be enough to generate a comfortable income in most parts of the country. Here’s how to think about it. (And if you need help planning your own retirement, consider matching with a financial advisor.)

Calculating Income Needs in Retirement

The first prong here is income. How much money can you expect from your combined savings and Social Security? Since we already have a sense of Social Security income, how much money will $1 million in a pre-tax account generate?

The exact answer depends on how you manage your money in retirement.To understand that, let's look at four possible options for investment: cash, bonds, stocks and annuities.

But first, we have to consider the all-important issue of longevity risk.

Longevity Risk

As The Hill recently noted, most people underestimate how long they will live and, therefore, how long their retirement will last. In fact, most people expect the average American to live to between 75 and 80, which life expectancy is actually 82 for a man and 85 for a woman.

The bottom line is that you want to make sure your money lasts for at least as long as you’ll live, and most people tend to underestimate that number. So, if you retire at 65, plan for a retirement that will last at least 30 years. Preferably longer, if you can. After all, you want your 100th birthday to be good news.

Portfolio Considerations

You also want to consider the savings and investment vehicles your portfolio is in, as it will affect your rate of return and therefore income throughout retirement. Talk to a financial advisor to build a portfolio to suit your specific needs.

  • Cash: Holding your money in cash means keeping it entirely in depository accounts or similarly situated products, like a savings account or a certificate of deposit. There are many issues here, but the biggest is that even at the Federal Reserve's benchmark rate of 2%, these accounts typically underperform inflation. This means you will lose spending power over time.

    With cash, and assuming a 30 year retirement, you can expect to withdraw about $2,700 per month. ($1 million / 30 years = $33,333 / 12 months = $2,777) With your $2,500 in Social Security, this would give you about $5,200 per month to live on. This is a reasonably comfortable income in most parts of the country, although it would also have a hard end-date. Starting at age 96, you will have to live on Social Security alone.

  • Bonds: Bonds are often the preferred option for retirees. They generate a modest rate of return and are about as safe as you can get short of a depository account. They also generate interest-based returns, meaning that with enough invested in bonds you can live off the yield alone without drawing down on your principal. While this will trigger a higher tax rate than selling assets for capital gains, it also provides a significant measure of security. If you can live off the yield of your bonds, you can maintain this account indefinitely.

    At the current Treasury rate of 4.3%, a $1 million portfolio would generate about $43,000 per year, or roughly $3,500 per month. With your Social Security payments that would generate about $6,000, again enough to live comfortably in most places. You could supplement it by drawing down on the principal, calculating a steady rate of withdrawal, and you would need to account for buying new assets as your bonds matured, but otherwise this is a source of income largely insulated from longevity risk.

  • Stocks: The S&P 500 has a historic return of around 10% per year. For someone holding $1 million in assets, then, a simple index fund would theoretically throw off about $100,000 per year in returns. On paper this means you could generate $100,000 per year, or $8,300 per month pre-tax, without ever drawing down on the principal. With your $2,500 in Social Security this would come to a very generous $10,800 per month, though taxes may affect your bottom line.

    The problem is volatility. That 10% rate of return is an average. Some years the market does much better, some years much worse. Some years it takes active losses. You would need to have the financial flexibility to make few, or even no, withdrawals during down years or else sequence risk would cripple your portfolio. Few retirees can do this, making stocks a poor chose for most people while in retirement.

  • Annuities: “If a retiree wanted the highest guaranteed income possible," Mark R. Hayes, CFP®, Founder of Infinitive Wealth Advisory told SmartAsset, "she could simply push her savings across a table to an insurance company in exchange for a SPIA, or single premium immediate annuity. This type of account acts like a traditional pension wherein the income will be paid until the death of the retiree, although one of the main drawbacks is that the retiree is forfeiting any control over their nest-egg."

    Annuities can be surprisingly lucrative and, like with bonds, they effectively eliminate longevity risk. As Bryan M. Kuderna, CFP®, author ofWhat Should I Do with My Money?, calculates, a $1 million annuity purchased at age 65 could pay you $75,000 annually, or $6,250 per month. With your Social Security payments, this would come to $8,750.

It's important to understand that these are hypotheticals. Other than the annuity option, it's rare (and inadvisable) to hold all of your money in a single asset. The point is simply to illustrate what kind of monthly income $1 million is capable of generating.

Calculating Your Spending Needs for Retirement

The question is what "comfortable" looks like, because the second part of this is the spending side. How much money will you need in retirement? Making this budget is essential because you need to know if your savings can meet your needs, and if your lifestyle can fit your savings.

"Leading up to retirement, we encourage clients to take an honest look at their spending," Kuderna continued. "Don't cut your projected expenses short, lifestyle doesn't magically become less expensive after a certain age. Running a budget of fixed expenses with an additional miscellaneous buffer is critical. As I often tell clients, in retirement everyday is Saturday, so the miscellaneous expense may be higher than expected.”

This last is a particular risk.

Many people plan for retirement by assuming that their costs of living will simply fall. They imagine a more modest life, one with fewer financial needs. To a certain extent that's true. You're unlikely to have childcare or college costs, for example, and you no longer need to budget for the monthly contributions to your retirement accounts (although that should be replaced by a monthly savings budget).

But don't make unrealistic assumptions. You will want to enjoy your life, not remain indefinitely stuck to a harsh budget that you drew up at age 47. Among other costs, honestly look at:

  • Housing

  • Lifestyle

  • Medical needs and Medicare

  • Unexpected expenses

  • Food and essentials

  • Taxes

A financial advisor can help you map your retirement and reach your financial goals. Match with an advisor today.

Bottom Line

Just as in any good budgeting, you’ll need to weigh your portfolio and income potential against your needs and wants, and build in a comfortable buffer for the unexpected. You have $1 million in an IRA and $2,500 in Social Security benefits. That's enough money to retire for some people, but make sure you plan for what your needs will be and how that will fit your budget.

IRA Investment Tips

  • Building a $1 million IRA is quite an accomplishment. And the first step is understanding… what the heck is an IRA in the first place?

  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/TinPixels

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I Have $1 Million in a 401(k) and Will Receive $2,500 Monthly From Social Security. Can I Retire at 65? (2024)


I Have $1 Million in a 401(k) and Will Receive $2,500 Monthly From Social Security. Can I Retire at 65? ›

Here, say that you have $1 million in a 401(k) or IRA, and expect to receive $2,500 per month in Social Security payments, a number right in the mid-range of possible benefits. Can you retire at 65? Well, it certainly depends on your standard of living. But for most people the answer is yes.

How much monthly income will $1 million generate? ›

At the current Treasury rate of 4.3%, a $1 million portfolio would generate about $43,000 per year, or roughly $3,500 per month. With your Social Security payments that would generate about $6,000, again enough to live comfortably in most places.

How long will $1 million in 401k last in retirement? ›

How long will $1 million in retirement savings last? In more than 20 U.S. states, a million-dollar nest egg can cover retirees' living expenses for at least 20 years, a new analysis shows. It's worth noting that most Americans are nowhere near having that much money socked away.

How much do you need to retire comfortably at 65? ›

Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that, if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.

Can you retire on $1 million dollars plus Social Security? ›

It's definitely possible, but there are several factors to consider—including cost of living, the taxes you'll owe on your withdrawals, and how you want to live in retirement—when thinking about how much money you'll need to retire in the future.

Is $1 million enough to retire at 65? ›

A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in. Based on this, if you retire at age 65 and live until you turn 84, $1 million will probably be enough retirement savings for you.

Can you live off the interest of $1 million dollars? ›

Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.

What is the average 401k balance for a 65 year old? ›


How many people have $1000000 in their 401k? ›

If you have more than $1 million saved in retirement accounts, you are in the top 3% of retirees. According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.

At what age should you have $1 million in retirement? ›

Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.

What is the average Social Security check? ›

Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.

What is a good monthly retirement income? ›

Average Monthly Retirement Income

According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

What will happen when Social Security runs out? ›

Reduced Benefits

If no changes are made before the fund runs out, the most likely result will be a reduction in the benefits that are paid out. If the only funds available to Social Security in 2033 are the current wage taxes being paid in, the administration would still be able to pay around 75% of promised benefits.

Is $2500 a month a good pension? ›

A retirement income of $2,500 a month will pay for a comfortable and secure lifestyle in many places in the United States.

What percentage of retirees have over $1 million? ›

Putting that much aside could make it easier to live your preferred lifestyle when you retire, without having to worry about running short of money. However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

How long will $1 million last in retirement by state? ›

For instance, in California, an average retiree requires approximately $100,965 to lead a comfortable life, whereas in Kansas, that figure is just above $63,000. Retirees in certain states can enjoy between 15 and 16 years of life if they save one million dollars.

How much would a $1 million annuity pay? ›

If you purchase your $1,000,000 annuity between the ages of 60 – 70 and start taking payments immediately then you can expect to receive between $4,500 and $6,500 per month for the rest of your life or for the time period of your annuity payout.

How much interest does $1 million dollars earn per year? ›

How much interest does $1 million make per year? Forbes reports that, on average, investors can expect about a 10% annual return on the S&P 500 — that's $100,000 per year, provided you reinvest at least some of the dividends. However, your return depends on several different factors.

What would the monthly interest be on 1 million? ›

Interest paid on £1 million before tax
Interest rate
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Mar 14, 2024

Are you rich if your net worth is $1 million? ›

Additionally, statistics show that the top 2% of the United States population has a net worth of about $2.4 million. On the other hand, the top 5% wealthiest Americans have a net worth of just over $1 million. Therefore, about 2% of the population possesses enough wealth to meet the current definition of being rich.

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