ISTOCKP
HOTO.COM32 KIPLINGER’S PERSONAL FINANCE^ 05/2019purchase, asking whether it was nec-
essary or could be achieved more
cheaply. For instance, instead of buy-
ing season tickets to the theater, they
volunteer there and see shows for free.
They dine out less and have become
better cooks. They say they now live
very comfortably on $36,000 a year.Reaching retirement. The Rutherfords
kept a monthly tally of their net worth
to see if they were meeting their retire-
ment savings target. Decades of saving
had brought them close to a seven-
figure nest egg, but their switch to a
more frugal lifestyle allowed them to
accelerate their savings. (Tim, whoAt the end of the fourth quarter of 2018, Fidelity Investments reported that 133,800 of
the retirement accounts it manages had a balance of $1 million or more. That’s only a
small percentage of the company’s accounts, but the number of 401(k) millionaires has
been rising steadily, and these savers are often seen as role models for workers who
dream of a financially carefree retirement.
The reality, though, is that $1 million isn’t what it used to be, and in some cases, it may
fall short of the amount you’ll need to finance your preferred lifestyle in retirement. If
you follow the 4% withdrawal rule—which is designed to ensure you won’t run out of
money—a $1 million balance will allow you to take out $40,000 the first year, then adjust
annually to account for inflation (see “Income for Life,” Oct. 2018). Whether that will be
enough (or more than you’ll need) depends on a host of factors, including whether you
have a pension and how much you’ll receive in Social Security benefits. Remember, too,
that you’ll have to pay federal income taxes on every dollar you take out of a 401(k) or
other tax-deferred account. Your state may take a bite out of your withdrawals, too.
When calculating how much you’ll need, it’s critical to get a handle on your living ex-
penses in retirement. One common rule of thumb is that you should plan on replacing
70% to 80% of your preretirement paycheck with withdrawals from your portfolio,
Social Security and other income (such as a pension). But some baby boomers who want
to travel and engage in other pursuits spend more than 100% of their preretirement in-
come during the first few years, says Dennis Nolte, a certified financial planner in Winter
Park, Fla. “If you’ve been looking forward to this date for 30 years, you’re not going to
stay at home,” he says.
Even if you do plan to stay home, health care expenses could consume a large portion
of your savings. Fidelity Investments estimates that a 65-year-old couple will need
$280,000, on average, to cover health care and other expenses in retire-
ment. Your expenses will depend on your health
and the likelihood that you’ll need long-term care
(see “How to Afford Long-Term Care,” March).
Whether $1 million is too much
or too little, it’s a worthwhile
goal—and it’s not out of reach if
you start early. If you save $325 a
month starting at age 25 and earn
an average annual return of 8%,
you’ll have more than $1 million by
the time you’re 65. If you wait until
age 30, you’ll need to set aside $500
a month to reach a million.Is $1 Million Enough to Retire?
DO THE MATHhas three children from a previous
marriage, has also set aside money
in a 529 college-savings plan to help
with tuition bills if they choose to go
to college.)
The Rutherfords figured that they
no longer needed $3 million to main-
tain their lifestyle in retirement and
could retire years ahead of schedule.
Amy retired in April 2015. Tim left his
full-time job the same year, although
he remained as a part-time consultant
with his employer until June 2017.
They live on savings, interest, divi-
dends and capital gains from their tax-
able accounts instead of tapping tax-
deferred accounts that carry penalties
for early withdrawals. Their biggest
expense is insurance—health, auto
and home—which accounts for 20%
of their annual spending.
All the cost-cutting has not cur-
tailed their traveling, which ignited
their desire to retire early in the first
place. Last year, they spent 107 days
traveling—about half of that time in
Europe—and often kept costs down
through one of their favorite travel
hacks: house-sitting. In exchange for
a free place to stay, the Rutherfords
watch the residence—and often the
pet—of a homeowner who is away.
(They find housesitting gigs on the
site http://www.trustedhousesitters.com.)
The couple have launched a blog
and a YouTube vlog—both called
“GoWithLess”—to teach others how
to do what they’ve done. Tim says it’s
difficult to persuade others to accept
a supersaver lifestyle un-
til they’ve bought, say,
fancy cars or a big house
and come to realize
they don’t need them.
The Rutherfords
aren’t done downsizing.
They plan to sell their
two cars and town-
house so that next
year they can
travel the world.
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