When is $1 million worth about $22,000?
The answer is, in retirement. How the math works, why so many people get it wrong and what we might do about it is what we’ll discuss in this article.
Million-Dollar Nest Egg
First, let’s do the math. Suppose you’ve been a committed saver and are one of the relatively few Americans who have accumulated a retirement nest egg of $1 million (just 9% of American households have saved more than $500,000 for retirement, according to the Government Accountability Office).
Being a millionaire, literally, is certainly worth crowing about. But if that $1 million is to provide retirement income and not run out over a span of 30 years, that very enviable amount of savings can safely generate only about $30,000 a year, resulting from a 3% drawdown rate that reflects today’s low-interest rates. After taxes, we get to the roughly $22,000 figure.