Is $4 Million Enough to Retire on in the U.S.?

When it comes to retirement, the dollar amount you need to be comfortable is very much a personal thing. The answer here resides in not just where you live and your cost of living but also how you want to live and what you want your lifestyle to be like while retired. 

As there is no best-guess number you need to have before retiring, we’ll have to pick a number we can examine to see if it’s still enough to retire comfortably. Based on various retirement scenarios, we can see if $4 million is still enough to retire in the United States. 

Living A Comfortable Retirement

Suppose you are a retiree in a moderate-cost region with minimal debt, like Texas, North Carolina, or Tennessee. In this case, it begs the question of whether $4 million is enough to “survive” retirement. 

We will examine what this would look like based on annual spending to answer this question. First, if you have $4 million available for retirement and utilize the widely accepted 4% rule, you are likely looking at around $160,000 annually pre-tax. 

Second, in the regions previously mentioned, you’re likely looking at expenses between $50,000 and $70,000 annually. This cost accounts for housing, food, entertainment, and healthcare. Now, let’s say you live in Asheville, North Carolina, and have a $300,000 home paid off with expenses totaling around $65,000 annually, an additional $15,000 in healthcare, and another $10,000 on travel. 

After taxes, Social Security deductions, etc., you have roughly $113,000 to spend annually. While living a moderate lifestyle in Asheville, you have $90,000 in total expenses, which means you still have around $23,000 in excess cash every year. 

In other words, $4 million is enough to retire if you live in a moderate-cost region like North Carolina. Of course, there is a caveat here in that we are not accounting for potential Social Security income, which would arguably take the $113,000 in post-tax money up considerably, giving you even more disposable income to live on. 

Maintaining A Pre-Retirement Luxury Lifestyle

While it’s clear that you can afford to live in a moderate environment on $4 million, the same question must be asked and answered if you want to live a more luxurious retirement in a moderate-cost region. 

Let’s say, for example, that you have fine tastes like you love international travel, luxury purchases, and eating frequently at nice restaurants. There is the potential that $4 million would surprisingly not be enough. 

Now, to help play this real-world scenario out and see where the math falls, let’s say you are spending between $120,000 – $150,000 annually. For the sake of argument, let’s say this includes $30,000 on travel and $20,000 on golf every year. 

To clarify this further, let’s pick another moderate-cost retirement city like Boise, Idaho, where someone with a $4 million retirement fund spends $140,000 a year. This would be broken down to $50,000 on the home, including maintenance and utilities, another $40,000 on travel (luxury), $30,000 on healthcare, and $20,000 on miscellaneous expenses like entertainment. 

The same $160,000 safe annual withdrawal of 4% applies, but you only have around $112,000 post-tax income now. The challenge here is that you don’t have enough money if you account for an average withdrawal of 4%, and you would have to go further into your principal to cover the remaining balance every year. 

Ultimately, this would mean that you will run out of money faster, which means that at this pace, $4 million is not enough to retire and maintain this luxurious pre-retirement lifestyle indefinitely.

Of course, this math doesn’t factor in any debt, so you have to assume that there are no significant debt obligations, or you would have to touch even more of your principal while retired. 

High-Cost Retirement Areas

Knowing that you can make it in many moderate-cost regions with minimal debt and limited expenses, we wonder how far $4 million goes in a high-cost urban area like New York or San Francisco. 

The average annual spending estimate for retirees in these areas is often between $200,000 and $250,000. This would include around $100,000 toward a home, $40,000 toward healthcare, and another $60,000 on food, travel, cars/insurance, and entertainment. 

In this scenario, you could consider a couple who lives in San Francisco and has a $1.5 million condo that is paid off but still spends $210,000 per year. This spend includes $80,000 on their property taxes and HOA, $50,000 on Medicare with a supplemental plan, and $80,000 to hang out with friends a few times a week at fancy restaurants. 

Given that their pre-tax retirement spend of $160,000 is only $106,000, this couple is almost $104,000 short annually on their expenses when drawing from a $4 million retirement fund.

Unfortunately, as they live in an area with high housing costs and considerable expenses for just about everything, they are being priced out as the cost of living increases. 

Substantial Financial Responsibilities

In these other scenarios, there wasn’t really any debt to speak of, which leads to the question of what happens if you still have $4 million to retire but significantly more financial obligations. This could include still having a large mortgage, live-in adult children, or helping to take care of elderly parents, and this is before any existing credit card or student debt. 

In this scenario, we can consider a family that spends $2,000 a month on their mortgage, which is $24,000 annually, $30,000 on college tuition, and a little more than $90,000 on lifestyle and healthcare for the whole family. This brings the total spend to $144,000 per year. 

If this family lives in Chicago, their $160,000 pre-tax withdrawal is only $112,000 in taxes. Almost immediately, you can see that they are $32,000 in the negative every year, which means more money is being drawn from the principal. In other words, the debt is dragging this family into the red every year, and while they can retire with $4 million, it won’t last very long as the cost of the mortgage and college tuition are dragging them way down. 

Things get even more complicated if you have things like medical debt, especially if you are a baby boomer who could be looking at $100,000 annually on long-term expenses. 

Where Does This All Land

Ultimately, if you want to retire on $4 million, the best scenario is to look at areas with a moderate to low cost of living and ensure that your spending habits don’t go wild. While it is possible to live a good lifestyle on this money, you won’t be able to live a luxurious life with travel and golf while still paying a substantial mortgage or heavy HOA and insurance fees every year. 

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