By Rick Kahler via

Retiring on a million dollars. The idea may evoke images of lavish retirement homes or luxurious travel. But let’s take a closer look at the real lifestyle that $1 million of retirement savings will afford.

It’s reasonable to assume a long-term real return, after adjusting for inflation, of 2% on a diversified investment portfolio. At that rate, $1 million would provide an annual income of $44,650 for 30 years. This leaves no cushion for emergencies or increased living expenses beyond inflation. It also leaves nothing after 30 years to pass on to heirs.

If you are single and age 65 with $1 million, you should be okay for 30 years. But what if you are married? While the adage “two can live as cheaply as one” has some relevance when it comes to housing, it doesn’t apply to food, clothing, transportation, health care, or entertainment.

If a third of our cost of living is housing, it would be reasonable to conclude a couple would need an income of around $75,000 to enjoy the same lifestyle as a single person living on $45,000. A couple with $1 million, then, only has 16 years of retirement income. If they retire at age 65, that only assures both of them enough money until age 81. That means a high probability at least one spouse will run out of money in their later years. This does not pass for good financial planning.

And how about a couple that, much more typically, has saved less than $1 million? On a portfolio of $500,000, they would run out of money in eight years.

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