Retirees Face ‘Million-Dollar Poverty’ Risk

January 2, 2018

Retirees are finding that a $1 million nest egg—which was once considered a benchmark for a secure retirement—may no longer be enough. As younger generations age, they will likely see that having a million dollars in retirement may even put them at poverty risk when they retire, financial planners warn.

A 67-year baby boomer retiring with $1 million will generate $40,000 to live off in the first year (adjusted for inflation and assuming a withdrawal rate of 4 percent), Mark Avallone, president of Potomac Wealth Advisors and author of “Countdown to Financial Freedom,” told CNBC. However, for a 42-year-old Gen Xer, they may see $1 million at retirement generating only $19,000 in the first year, adjusting for inflation. A 32-year-old millennial planning to retire at 67 with $1 million would be below the poverty line.

Avallone calls it the “million-dollar poverty.”

Longer life expectancies, rising uncertainty over pensions, and a lack of retirement investment income and planning among younger generations are all contributing to the rising risk, Avallone says.

“Today’s generation of working people grew up in an era where their parents went to a mailbox, and a check appeared. But pensions are almost extinct,” Avallone says. “People have to self-fund their retirement, and the enormity of that challenge is underestimated.”

Just how long a nest egg would last varies across the country, stretching the furthest in states such as Mississippi, Arkansas, and Tennessee, according to a study by GoBankingRates. But residents in Hawaii would find it doesn’t go nearly as far.

Avallone says more retirees will likely need to get a side job or “hobby job” and be vigilant about saving 100 percent of that income to help carry them through retirement.

“The key is to automatically deposit that money in a savings or investment account,” he says.

Source: “When a $1 Million Retirement Nest Egg Isn’t Enough,” CNBC (Jan. 1, 2018)