What The Wealth Retirement Podcast

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

• Jonathan Bednar II, CFP • Episode 113

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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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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

Speaker 1:

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 So let's talk about where it came from, why it's outdated and how to figure out what your number really is.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:

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

Speaker 1:

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:

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:

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:

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:

So why is everyone's number different 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:

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:

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

Speaker 1:

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:

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:

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:

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:

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:

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:

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:

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:

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 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:

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:

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. 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.