Is $2 Million Enough To Retire Comfortably? How Long Will It Last?

Is 2 Million Enough To Retire

If you’ve got $2 million at retirement, you’re probably going to enjoy a comfortable retirement. But first, there’s a few things to consider.

Let’s find out how much retirement income $2 million will provide and how to make sure it doesn’t run out too quickly.

Is $2 Million Enough to Retire?

If you have $2 million at retirement, it will be enough to retire and cover a comfortable retirement… plus some.

The important thing about retiring on $2 million is understanding 3 things:

  1. How much income you need in retirement;
  2. How long you need the retirement income to last; and
  3. How you should invest the $2 million to achieve this.

1. How Much Income You Need at Retirement

The amount of income you need to cover your retirement expenses will impact how long $2 million will last in retirement, as well as how you should invest it.

For example, with $2 million, you could cover retirement expenses of $100,000 per year for much longer than you could cover expenses of $200,000 per year.

The amount of income you need will also influence how you invest the $2 million and the risk you need to take in pursuit of your retirement income objectives.

So, the first step is to calculate how much income you need in retirement. The next is to determine how long you need it to last.

2. How Long You Need the Retirement Income to Last

Once you know how much income you need in retirement, the next step is to think about how long you would like to receive that retirement income.

Do you want to cover expenses until age 90? 95? Or 105? How many years will that be all up?

Or, do you want to keep the capital in place indefinitely and live solely off the income it generates?

Once you know how long you need the $2 million to last, the final step is to think about the best way to invest it.

3. How You Should Invest the $2 Million for Retirement

By knowing how much income you need each year and how many years you would like to receive that income, you can now calculate the average investment return needed each year to achieve it.

No investment return is ever guaranteed. However, there is enough historical data available to show the likely average return that should be achieved from a particular asset class as a whole, or a portfolio of diversified investments allocated to a range of asset classes.

If you are aiming for a higher return (e.g. >6% p.a.), then you will need a higher bias towards growth-oriented assets (shares and property) in your portfolio, which also means a higher risk and less certainty of the actual return that will be received.

Conversely, aiming for a lower return (e.g. <6% p.a.), means your investments can be more defensive-oriented (cash and fixed interest). Such investments incur lower risk and more certainty of the long-term returns received, meaning your retirement outcome has a higher probability or ending up how you expected it to.

What investment return do you need to meet your desired retirement income for the intended timeframe?

Let’s make some assumptions to see how a single person and a couple can retire on $2 million.

Can a Single Person Retire on $2 Million Dollars?

A single person can retire at age 60 on $2 million dollars and achieve a retirement income of $101,000 per year until age 92, assuming an investment return of 6% p.a.and inflation of 3% p.a.

For a higher level of certainty in attaining this level of retirement income, you should be looking to invest in a diversified portfolio or a superannuation investment option that has the objective of achieving returns of 6% p.a. (no more and no less), and has a good track record of achieving this.

Can a Couple Retire on $2 Million Dollars?

A couple can retire at age 60 on $2 million dollars (combined) and achieve a retirement income of $116,500 per year until age 92, assuming an investment return of 6% p.a.and inflation of 3% p.a.

The reason a couple can achieve a higher return than a single person, is due to being assessed differently for Centrelink Age Pension purposes, which becomes a factor from around age 75 onwards.

To put things in perspective, a comfortable retirement is shown in the table below:

Modest LifestyleComfortable Lifestyle
SingleCoupleSingleCouple
Expenses per year$31,867$45,947$50,207$70,806

Therefore, an individual or a couple can retire quite comfortably with 2 million dollars.

How Long Can $2 Million Last?

You can live on 2 million dollars for as long as you like if you were to only live on the income it generates.

For example, if you were to invest in a portfolio that produces income return of 3% p.a. and capital growth of 3% p.a. Then you would have an income of $60,000 per year (in today’s dollars) indefinitely and always retain access to a capital value of $2 million ( in today’s dollars).

In this example, the same retirement income is achieved for both individuals and couples, as neither will ever be eligible for Age Pension payments with this level of assets.

If you would like an income in excess of $60,000 per year, then you would either need to take on more investment risk, with the intention of achieving a higher return, or partly draw down on capital each year to supplement the income it generates.

Read Next: How Long Will My Money Last in Retirement?

How to Retire on $2 Million Dollars

There are a number of approaches you can take to retire on $2 million in Australia. Most people will have the majority of these funds within a superannuation income stream, that provides regular tax-free income and tax-free investment earnings.

In addition to superannuation, a smaller amount (maybe 6 months’ worth of income) will be held in a personal bank account as a slush fund to cover emergencies and unforeseen expenses.

Read More: Build a Retirement Investment Strategy in 5 Steps

How to Make $2 Million Last a Lifetime

There are two ways you can make $2 million last a lifetime: Either by (1) aiming for a specific retirement income or (2) aiming for a specific investment return.

So, how does this work?

Well, let’s say you want to retire at 60 and you consider the definition of a lifetime to be living until age 100. This means we know one part of the equation – how long we need your retirement savings to last (40 years).

If you were aiming for (1) a specific retirement income; then you would need to know the level of investment risk and commensurate return you are comfortable with.

For instance, if you are comfortable with a medium level of risk, which means investing in a portfolio that is likely to produce an investment return of 6% p.a., then you would simply calculate how much income would be received each year if $2 million was invested for 40 years (age 60 to age 100) and earning 6% p.a., with the final balance at age 100 being $0.

If, instead, you were aiming for (2) a specific investment return; then you would need to know the retirement income you would like to achieve.

For instance, if you would like an income of $100,000 per year, then you would simply calculate what investment return is required each year if $2 million was invested for 40 years (age 60 to age 100) and able to generate $100,000 per year, with the final balance at age 100 being $0.

These are the two ways to make sure $2 million lasts a lifetime.

Read Next: How Much Super Do I Need to Retire?

What Does Retirement on $2 Million Look Like?

Retiring on $2 million would provide you with a more than comfortable retirement income. Specifically, retiring on $2 million for an individual would provide an income of around $100,000 per year and $116,000 per year for a couple.

A comfortable retirement is defined by the Association of Superannuation Funds of Australia (AFSA) as maintaining a good standard of living, accounting for essentials such as groceries, transport and home repairs, as well as private health insurance, exercise and leisure and the occasional restaurant meal. It also allows for connectivity through technology, annual domestic travel and an international trip once every seven years.

Given that a comfortable retirement income is considerably less than the income $2 million can provide, you can get an idea of what retirement on $2 million would look like.

Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.

Frequently Asked Questions

Here are some frequently asked questions around retiring on $2 million.

Can You Retire Comfortably With 2 Million Dollars?

Yes, you can retire comfortably with $2 million dollars. In fact, $2 million would provide a single person with twice the income required to meet what ASFA defines as a comfortable retirement and would provide a couple with income of 60% more than what is required for a comfortable retirement.

Can You Retire at 40 With 2 Million Dollars?

You can retire at 40 with $2 million dollars and it would provide a single person with an income of approximately $65,000 p.a. until age 100, or a couple with $73,000, based on an investment return of 6% p.a. and inflation of 3% p.a. This assumes full homeownership and eventual eligibility for Age Pension payments.

Can You Retire at 50 With 2 Million Dollars?

You can retire at 50 with $2 million dollars and it would provide a single person with an income of approximately $70,000 p.a. until age 100, or a couple with $80,000, based on an investment return of 6% p.a. and inflation of 3% p.a. This assumes full homeownership and eventual eligibility for Age Pension payments.

Can You Retire at 60 With 2 Million Dollars?

You can retire at 60 with $2 million dollars and it would provide a single person with an income of approximately $88,000 p.a. until age 100, or a couple with $96,000, based on an investment return of 6% p.a. and inflation of 3% p.a. This assumes full homeownership and eventual eligibility for Age Pension payments.

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