You too can accumulate $1,000,000 in retirement funds … and then create a retirement income stream

Let’s keep it simple

Can a worker of average means accumulate sufficient funds to retire and maintain their lifestyle? Absolutely!

How realistic is it to accumulate $1,000,000?

Starting young and never giving up while increasing the savings rate with growing income makes such a goal very realistic – however, a goal of retiring well before age 65 makes that more difficult, but that is a choice that affects lifestyle before and after retirement. Here is a back of the envelope example.

A worker age 25 earning $30,000 a year saves $250 a month – 10% of earnings until age 65. Earning an 8% return this accumulates $870,757.96. Assume a average 10% annual return and the balance jumps to $1,579,150.84. Note this is a fixed saving amount, not ten percent of increasing income and thus well understated.

It also does not include any employer contributions which are possible for at least a portion of working years. Add a 3% employer 401k match to the 10% contribution returning 8% and the balance becomes $1,184,222.11.

In this admittedly simplistic example. However, over forty years the worker only saved $120,000 of the total value.

At age 65 with annual raises of only 2.5%% his salary will have grown to $80,551.92 – practically, his savings and investments will – should – have kept pace.

What seems an overwhelming goal is not when exercising discipline and leveraging time and the power of compounding.

Most average Americans are not savvy investors nor are they inclined to use detailed software and spreadsheets. A Monte Carlo calculation probably means how to find the casino. No, I’m not putting people down, but the reality is most people are not financially literate nor do they seek to be. In my experience the majority of people saving for retirement are risk adverse, a bit wary of the stock market and tend to be overly conservative

Now that we know it’s quite possible to accumulate retirement funds, let’s look at what I see as a realistic example of an another individual using their retirement assets.

Let’s call this person Jack – he reaches age 65 and wants to retire. Being responsible all his working life Jack has accumulated $1,000,000 in retirement assets over the last forty years and $200,000 in other investments. His current income is $65,000 per year. This is a big decision and Jack needs some assurance he will have a steady income until the end.

He has invested in index mutual funds p, ETFs and fixed income. How can his goal be accomplished?

One option is to live off retirement investments using the 4% withdrawal method. That yields initial income of $40,000 or 62% of current income. That’s below the prevalent 70-80% recommendation – and way below my outlier of 100%. Jack needs to decide if that is sufficient at least for now. In addition, is Jack, the wary investor, comfortable relying on the stock market in retirement?

While conventional wisdom says maximize your Social Security for the future and delay collecting until age 70, Jack could start SS at 65 and receive $1,517 a month. His total income would be $58,204 – almost 90% replacement. Good short-term move, but bad long-term strategy?

The question for Jack is how important is a steady, hopefully guaranteed retirement income. How much risk can he tolerate? If his answer is very important and minimal risk, he may consider delaying Social Security and use a portion of his retirement assets to buy an immediate annuity. Investing say $350,000 could get him $2,198 per month. To some people buying an annuity is heresy. But that income together with 4% of the remaining $650,000 retirement funds equals $52,000 or 80% replacement – with more income later from Social Security.

Now we are getting there, but is buying an annuity a smart move at 65? Turning over $350,000 may be tough for Jack, but how else does he reach at least 80% income replacement with as guaranteed as possible income?

For those “never buy an annuity” folks, maybe it’s time for a rethink. The fees, interest rate, risk of losing money are secondary to a steady – less stress – income for some people – maybe Jack. Inflation, even early death risk, can be dealt with by the annuity terms.

Jack’s $200,000 non-qualified funds could generate more income and be used for emergencies or smoothing withdrawals in down markets. It could be invested for income and later help offset inflation.

What started off simple ends up with important decisions to be made and question to ask.

• Has Jack really accumulated enough money?

• How much income replacement does Jack need – want?

• Can Jack meet his goals including income security needs at age 65 and beyond?

• Is Jack sufficiently protected from inflation?

• Can Jack delay Social Security – perhaps to 70?

• Should Jack ever buy an annuity?

• Can Jack, a very average guy, make the right decisions on his own?

What other options are there for Jack, the very average American?


  1. $30,000, I wish I could of made that amount when I was 25, back in 1981. In 1981 my income was $13,665. In fact I only made over $30K the last 3 years on active duty with the USAF. In 27 years of work, I only made $299,193. The best thing that I ever did was 20 years in the USAF. I retired from the USAF in 1995 with a monthly pension of $1,026, with COLAs it has increased to $2,034. I have received over $500,000 so far. With Social Security and Military retirement, if I live to be 82, my expected life expectancy, I will collect an additional $648,180, not counting COLAs.

    $1,000,000 was a lot of money in 1974 when I graduated high school, today it would take $6.4 million to buy what it did in 1974. That 25 year old better save more than $250 per month. But, I do not know any 25 year old in my extended family making $30K today, $20 K to $25K is it. We expect people to save for retirement with a wage floor of $7.25 per hour in 2023, good luck with that.


      1. Not for the bottom 30 percent. That is the problem with averages. It does not tell the whole story.


  2. I can’t lay all the blame on young people in their early 20’s. After all, retirement is something that old people do and that is light years away. In the meantime there are houses to be bought, cars to be bought, children to be raised and a myriad of other things. When I was in my 20’s and early 30’s there was no 401k and a limited IRA was started when I was already out of my 20’s and I had no clue what it would or the rules for it. Index funds didn’t start until I was already past 30 and I didn’t know what that was either.
    In spite of the late start on saving and learning, I pulled through it all with a nice retirement sum and monthly income so that I’m not worried. The younger folks can do just as well, even with a later start.
    As for a consumption economy, I feel blessed to live in a time that such choices are available to us.


  3. We live in a consumer driven economy. The government, Wall Street, and Madison Ave, all encourage consumers to buy, buy, buy. Government, colleges, and the educational cartels encourage spending beyond one’s means to get an indoctrination instead of life skills and learning critical thinking. It is no wonder that most Americans have a lack of interest nor an understanding about saving and retirement. Most Americans do not understand credit card or student loan interest. Most Americans seem to believe that the government will bail them out and give them free money that they are entitled to. Since 2008, I can’t say that I blame the American people for believing that. Look at all that free pandemic money to stay home.
    Politicians keep buying votes and promising more money or that the people won’t have to pay (taxes) for their entitlements.

    Congress won’t face the hard truths about Social Security and any adjustments to Social Security is viewed as an attempt to kill Social Security. Politicians have made Social Security a national pension plan which it was never meant to be. With Social Security, why would Americans even worry about paying for retirement? After all, there are COLAs that will keep you living your present life style right? 4% rule is the COLA raise? Only if people understood while they are in their 20’s.

    I’ll bet that most young people view Medicare as being free too. I was one. While it’s true that Part A is free, you need more than just part A. I didn’t understand that until I tried figuring out why there were open enrollment commercials after I retired at 55. My company put the information out there forever, I just didn’t start to make the connection until I was retired. Think about all the people who don’t even work for a company with an HR department that gives out this information. These people must depend on the misinformation on the Internet if they even know to research the topics.


  4. You are absolutely, positively 100 % correct on the lack of interest most Americans have on savings and investing for retirement!!!


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