The Million Dollar Retirement Myth, Holding You Back? (113)

I discuss the long-held myth that $1 million is the universal retirement target and explore why your personal number depends on your unique circumstances and goals.

• The million-dollar retirement target originated from the 4% rule but does it account for today's economics?
• What's the impact of Inflation, healthcare costs, increased longevity, and market volatility on the million-dollar benchmark?
• Your retirement number depends on lifestyle, debt, location, family obligations, and income sources
• The danger lies in either over-saving and missing out on life now, or under-saving and risking running out of money
• Rather than focusing on someone else's benchmark, build a plan based on your expenses, guaranteed income, and personal goals
• Our 6-5-4 bucket strategy helps clients build personalized retirement plans that match their values and dreams

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🌐 Paradigm Wealth Partners (website) – Financial planning for career professionals who want to retire and stay retired: https://paradigmwealthpartners.com/
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▶️ YouTube: Paradigm Wealth Partners

If you or someone you care about could use the help of a financial advisor and sees the value in establishing a financial plan, please reach out to me. 

Thanks for Listening! 

Jonathan

Transcript

The Million Dollar Retirement Myth

Speaker 1 0:05

The $1 million retirement myth , why the number you've heard might be wrong . Welcome back to the what the Wealth Retirement Podcast . I'm your host , jonathan Bednar , certified Financial Planner . Around here we talk about real life strategies to help you retire with confidence and live the life you've been working for . Today , I want to bust a myth that you've probably heard your entire life that you need a million dollars to retire . It's been the magic number tossed around in articles and books and around the office even for decades . The real truth is that number is either too much or too little , depending on you . So let's talk about where it came from , why it's outdated and how to figure out what your number really is .

Speaker 1 1:01

Where this $1 million figure came from is when this $1 million figure came from decades ago when the 4% rule became popular . The 4% rule was published by a financial advisor by the name of William Bengen . To make this simple , he created a lot of tests and research and data to determine this 4% rule , and the math worked like this If you have a million dollars invested , you could withdraw 4% of that about $40,000 a year and not run out of money for about 30 years . Combine that with Social Security and for many households . That covered the bills . Sometimes it still covers bills for people . The problem is is that , based on the economy , the interest rate and really inflation , especially over the last five years , the living expenses of people in the 90s and early 2000s are just not comparable to today , and so it's a little bit outdated . Not necessarily the 4% rule I think that still may be a good rule of thumb . I'm talking more specifically , the million dollar number , and that's what everyone thinks of when they think of retirement planning . I'm finally at the million dollar number and that's what everyone thinks of when they think of retirement planning . It's , you know , I'm finally at the million dollars . It is a wonderful feat to accomplish and well-deserved pat on the back if you get there , because it takes a lot of dedication , savings , commitment to your budget to reach that $1 million . Sure , there's some people that get lucky and they hit it fast with the right stocks or a big inheritance , or some people even win the lottery . It's not the end-all be-all and you shouldn't base your financial plan and your retirement on the big $1

Why One Size Doesn't Fit All

Speaker 1 3:06

million figure . So let's talk about why that number doesn't fit anymore .

Speaker 1 3:11

Inflation I just mentioned that especially from 2020 to the time I'm recording this , which is August of 2025 , inflation has skyrocketed . August of 2025 , inflation has skyrocketed . When you combat inflation or not combat , when you calculate inflation over the last 20 or 30 years , it is up significantly . A lot of clients that I talk with , and even dad . I remember when I could buy XYZ for $1.50 . Let's just say milk or gas . Those are easy ones to pick on . 20 or 30 years ago you could buy milk and gas for $1.50 . And today , gas costs $3 to $5 a gallon , milk is $4 a gallon , and so everything has gone up significantly , so that $40,000 a year , 4% on a million dollars , doesn't stretch the way it used to .

Speaker 1 4:13

You also have healthcare costs . A 65-year-old couple today may need over $300,000 for healthcare and retirement , and that can be before . Long-term care Depends on your Medicare premiums . It depends on your prescriptions , it depends on your health status , what kind of chronic diseases you have . So healthcare , and when you add on things like , let's say , assisted living or a nursing home , something like that , it can grow even more . We're living longer . We're living much longer . I've talked about this in past podcasts . Technology is getting better , healthcare is getting better and that means we are having longer lifespans , which means your money needs to last longer than the typical 25 or 30 year retirement . In fact , I see a lot of people retiring in the early 60s and live until mid to late 90s , which you know . So we're talking about between a 30 and a 40 year retirement . It's essentially an entire working career all over again just in retirement . So longer lifespans and then , finally , market volatility .

Speaker 1 5:32

Your behavior is one of the five big risks in retirement that I talked about in the book that I wrote . What the Wealth ? Identify your core values , reignite your dreams and combat the five big risks to retirement . Your behavior pulling money out of the market , deering down markets is a huge , a huge risk that could have a catastrophic impact to your financial plan and a successful retirement . That has a direct impact on what we call sequence of returns risk , which is another , or longevity risk , which is one of the other five big risks in retirement .

Speaker 1 6:20

So you know , if you're jittery and panicky and full of these emotions which is natural then it is and you make a move . You know you don't have that trusted guide to help you make decisions . We're all more emotional with our own money than we are with someone else's , so you know , if you end up making a decision and it ends up being wrong which we never know until you know the decision is well past us and we have 20-20 vision on what that decision was , then you know that could have a major impact . So these are just the things to be considering when you're trying to figure out . You know how much do I need to retire and why . A lot of times I think a million dollars doesn't fit anymore . There's a lot that goes into building out a successful financial and retirement plan .

Speaker 1 7:24

So why is everyone's number different

Your Number Is Uniquely Yours

Speaker 1 7:26

then ? And this is kind of , I feel , like the part that most articles skip and maybe they do it for simplicity , maybe they do it because you know the article would become too long . You know there's there's a plethora of reasons who knows ? But it is really important to figure out why everyone's number is different , and actually that's not important . What's important is your number isn't mine and my number isn't yours , and so I don't care what your number is . In all actuality , I need to know what my number is because , at the end of the day , my life and my number is the only thing that matters for me and my family , and so that's what's the most important in your situation . So your number . That's the only thing you got to focus on and , again , a lot of articles skip over a lot of this , but these are the things that are important to consider , to be thinking about when you're trying to come up with what your number is .

Speaker 1 8:30

A lot of times we have people ask us specifically what should I be saving for what number ? Do I need to hit ? What's my number ? And it's just not that easy . There's a lot of questions that you've got to answer .

Speaker 1 8:41

So lifestyle goals Are you living a simple life close to family ? Are you traveling internationally ? Do you have multiple houses in multiple states or countries ? Do you give a lot of money away ? There's tons of things to consider about your lifestyle . Do you go out and eat a lot ? Do you cook at home a lot ? Do you eat all organic ? Do you eat all processed ? I mean , just right , there shows that these numbers differ wildly . Then you start talking about debt . Are you retiring debt-free ? Are you carrying a mortgage and other debt in retirement ? How are you going to pay for future things like new car , assisted living healthcare in retirement , new car , assisted living , healthcare and retirement taxes , home maintenance , everyday living , everyday expenses , those sort

The Dream Retirement Process

Speaker 1 9:33

of things . So that's another thing to consider .

Speaker 1 9:43

Location is important . Tennessee has no state income tax but if you move to a higher state , hire another state with a higher state income tax New Jersey , new York , california that changes the math . We got to account for that . We have clients that live in Michigan and when we do a distribution we automatically have to send I can't remember the numbers around 5% state income tax , 475 maybe is what I'm thinking If you're from Michigan , don't , maybe is what I'm thinking If you're from Michigan . Don't blast me if I got that number wrong , but the point is these have to be accounted for because they're important . So states like Tennessee and that no state income tax become really attractive in retirement .

Speaker 1 10:23

Another thing to consider is family . Are you going to be supporting kids or grandkids ? Retirement Another thing to consider is family Are you going to be supporting kids or grandkids and to what level of support ? Is that going to be pretty hefty support ? I actually have a client who's dealing with this right now and in all actuality , probably retired too early . Hated , his job was 62 , just thought it was easier just to hang it up and retire .

Speaker 1 10:50

Due to some unfortunate circumstances daughter and son-in-law and grandkids live with them and it just makes it very , very difficult from an expense standpoint . It's crushing to their financial planning situation . So it's really important to think through are you going to be supporting kids , how are you going to do that ? And some of the stuff you can't plan . It's really hard to plan for some of these events . They're tragic , they're sudden , they come at the snap of a finger . We can't plan for everything . Variables change but it's important to be thinking through some of these .

Speaker 1 11:33

And a lot of times when we're doing our financial planning we're doing a what-if scenario . What if you know kids and grandkids have to move back in for some reason ? Or what if there's a premature death for me or my spouse ? How will that impact the other surviving spouse ? So very , very important . And then you know we also got to look at income sources social security , pensions , rental income . Are you going to tinker at Lowe's ? And you know , tell people where Nell's are . You know , how are you going to pay some of these bills without just being totally dependent on your number , your nest egg ? A lot of what we do is trying to help people turn their nest egg into a paycheck , and so we're going through this , as we're doing our financial plan , as we're building out and modeling what that retirement looks like . We're going through these things and having these conversations .

Speaker 1 12:25

So the danger of the one size fits all rules are that , if you believe the $1 million myth , one of two things happens . You either over save and miss out on enjoying life earlier . That's if you , you know , live a very simple , frugal life , and I have clients that do that . I've gone to live on $2,500 a month , $3,000 a month , bare bones . Social security covers basically all of that and they're happy . They . They're just , they live a simple life . So , again , one of the risk is you either over-save , miss out on enjoying life now , or you under-save and you risk running out of money later . These are two very , very real scenarios that we see all the time .

Speaker 1 13:12

One of the other dangers is making decisions based on someone else's yardstick instead of your own . My neighbor's number and my number are two totally different things . I have many , many households that we support provide retirement advice for , financial planning advice , for tax planning advice for , and all of their situations are totally different . I see this along among male clients more than than female clients . You know it's easy to , to be around the water cooler at work and you're talking about your 401ks or , um , you know what new hot stock you bought or are these other things , and so you're making these decisions based on someone else's yardstick . It's a a huge mistake . You know you need to play by the rules . You define this game . The game you're playing is only your game and you need to define those rules and make those decisions based on your game .

Speaker 1 14:19

So here's how we at Paradigm Wealth Partners build that personalized retirement approach , the better approach , what I like to call the dream retirement process . What I believe is is , if we can marry your core values and your dreams together , you have a fulfilling and purposeful retirement . And to do that , we have to come up with what is your number . So , you know , we gather some information . What does your social security look like ? What does your accounts look like , so on and so forth .

Speaker 1 14:58

But your expenses are a huge driver of success in retirement . So we start with your expenses . What does it actually cost you to live your life Not just survive , but to live your life . And if you want to look at that in two facets , okay , what is it ? Bare minimum period , the end to survive . And then what does it cost to live your normal life ? You know , go to Chewy's . You know , get a Cold Stone ice cream , whatever . You got to know your expenses . Then we got to factor in the things like the guaranteed income , social Security , pensions , things that provide guaranteed income that last for your lifetime . That helps us offset some of those expenses and that leaves a gap . That gap is really the true driver of how much you need to have saved .

Speaker 1 15:58

We like to build what we call the 6-5-4 bucket strategy . I've talked to this on some past episodes . It is a core piece of our retirement plan and when we , when we , you know , build that we're , we're filling that gap with these investments and and that gap helps us know exactly what we need in that five-year war chest retirement and helping you weather the early storms of sequence of returns , risk in retirement , giving you the ability to get income off of your investments . But that is really how you determine how much you need to have saved and then

Forget the Myth, Find Your Number

Speaker 1 17:04

we can stress test your plan . We can run the numbers for different market scenarios , for different inflation rates , for big what ifs . What if we decide to take the whole family to Disney at Christmas ? What if we decide to take that retirement Viking cruise we've been talking about ? By the way , if you need , this is kind of off the subject real quick . But if you need travel agent who is a expert in Europe , let me know I have one who is absolutely amazing at European travel Viking cruises . Even if you're not going to cruise , you're just flying over there and you're touring around and traveling . She knows everything about everything . So back on target . You know we can stress test the plan for these different scenarios and that helps us then get a little bit more comfortable with you know , is it okay to retire ? Are we on track ? You know when is the right time to actually switch from accumulation into decumulation Jargon word for you know , spend some of the money in your account to start your retirement life . So that are some things to think about .

Speaker 1 18:22

Again , we're big believers in the 6-5-4 strategy . Again , I've talked about that on a prior episode a couple shows ago , so I'm not going to talk about it again today . I hope this has really been helpful . But ultimately , what I want you to do is forget the $1 million myth . Your retirement plan should be based on your life , your goals , your dreams , your numbers . Finding that number isn't complicated when you sit down and work through it . And if you need help , we do that every day for clients . And if you're ready to discover what your number would be , build a plan around it , let me know . You can go to ParadigmWealthPartnerscom and schedule a consultation . You can also email me at info at ParadigmWPcom .

Speaker 1 19:11

If you found this episode helpful , share it with a friend . That helps us more than you know . Be confident in your retirement . Have a wonderful day

Episode Closing and Disclaimers

Speaker 1 19:20

. Thanks for joining me on another episode of what the Wealth . If you enjoyed the episode today , smash that subscribe button . It helps me more than you think . Also , if you found this episode insightful and a light bulb went off , share it your friend , aunt Judy , the random guy in the office who's always talking about investments . Wealth isn't about just the chain . It's about our choices , chances and changing our financial futures . The information in this podcast is informational , in general in nature and does not take into consideration the listener's personal circumstances . This podcast is not intended to be a substitute for specific and financial , legal or tax advice . You should consult the approved qualified professional prior to making a final decision . Securities offered through LPL Financial member , finra , sipc . Paradigm Wealth Partners is the other business name for Independent Advisor Alliance . Investment advice offered through Independent Advisor Alliance a registered investment advisor . Independent Advisor Alliance and Paradigm Wealth Partners are separate entities from LPL Financial .