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Is a million dollars enough to retire on? For decades, this number has been held up as the gold standard of retirement savings. But here’s the surprising truth that might shock you. Despite what many financial experts claim about needing $1.7 million or more these days, a million dollars can still provide a comfortable retirement if you know exactly how to optimize it.
While headlines scream that you need more and more money, the reality is what the right strategies, million dollar portfolio can generate substantial retirement income and last for decades. Hey there, I’m Danny Gudorf, founder of Gudorf Financial Group, and I’ve helped hundreds of families over 50 plan for a limit this retirement. Today, I’m going to show you exactly what a million dollar retirement really looks like in 2025.
not the fear-based version you often hear about in the media, but the actual numbers based upon a real client scenario. Now, we’ve changed the names for privacy, but this is a real client situation. I’ll reveal the surprising factors that can make your million dollars work harder for you, and most importantly, I’ll show you the specific strategies that can help you maximize every dollar of your savings
regardless of whether you have $500,000 or $5 million. Let’s start by looking at this real client case study. Meet Jack and Sam, a couple in their early 60s who recently retired with a million dollars in their investment accounts. They’ve worked hard their entire careers, diligently saved, and finally reached the coveted seven finger milestone. Like many retirees, they were concerned about whether
this amount would be enough, especially after reading countless articles claiming they needed much more. But when we ran their actual numbers, what we discovered was encouraging and it might surprise you too. First, let’s break down exactly what Jack and Sam have. Their million dollars is divided between their two retirement accounts. So if we come over to their balance sheet here, we can see that in their million dollars investment accounts, has $700,000 in a
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401k and Sam has $300,000 in an IRA. They have a home that they’ve paid off that’s worth $500,000. They have no mortgage on that, but they still have to pay property taxes and insurance and retirement. They have about $50,000 in the bank that is in cash for their investment accounts. So if we go back over to their goals here, they want to retire here soon. They don’t want to wait until 65.
They want to spend about $5,000 a month in retirement, which is going to cover their basic living expenses, some travel, and occasional gifts to their adult children. This doesn’t include their healthcare costs, which we’ll address separately. So if we come over to their healthcare costs, we have to factor in what are their expenses going to be prior to Medicare. So we’re factoring in about $12,000 per year, per person.
prior to Medicare. So this is pretty expensive. Now there are some things we could do with subsidies depending upon where that shakes out with the new tax bill and where their income is coming from, but we wanted to be conservative. And then once they get on Medicare, they would have a supplement policy as well as about $4,000 per person per year for their Medicare expenses. So that completes what their retirement goals are for income.
They’re currently working, Jack is making 135,000, Sam is making 90,000, and then we go over to their Social Security. We have Jack’s Social Security at full retirement age of 67. We have that at 3,200 per month, and Sam’s Social Security at full retirement age at 2,400. In this example, we’re just gonna assume that they’re gonna take Social Security at full retirement age and not take it earlier or wait till 70.
So when we come back over to their retirement, we see that they have a 93 % probability of success and a 7 % chance of failure. Now, this is not how we want to go about judging their retirement. We want to see, this just gives us an idea based upon a thousand different trials. This is going to allow us to test different scenarios. But when we really are trying to figure out if they can retire and what it looks like,
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We want to come over to their situation and look at their retirement details. Now, the most important part of your initial retirement plan is what is your withdrawal rate in retirement? So we can see in those first few years of retirement before Social Security kicks in, their actual withdrawal rate isn’t 4%. It’s close to 8 or 9 or 10%. This is significantly higher
than what most people or financial advisors would recommend. And it creates something called sequence of returns risk. And here’s what that means in plain English. If the market performs poorly in the first few years of your retirement, like it did in 2000 or 2008, you could be forced to sell investments at a loss to generate income. This creates a downward spiral that’s very difficult to recover from even if and when markets eventually rebound.
It’s like digging a hole that gets deeper and deeper with each withdrawal, making it nearly impossible to come back out of. So what can Jack and Sam do to protect their retirement? This is where most traditional advice falls short. Most advisors would simply tell them to cut back on spending or work a few more years in retirement. But there are actually several strategies that can dramatically improve their situation without forcing them.
to have to compromise their retirement. The first involves restructuring their investment portfolio using what I call the three bucket approach. Instead of thinking about your investments as one big pool of money, we divided into three distinct buckets based on when they’ll need the money. Bucket one is your cash reserves. This is for immediate spending needs. We want to have at least one to two years of expenses in cash.
Bucket two is going to be your conservative investments like bonds, fixed index annuities or high yield money market accounts. That’s going to hold three to five years of expenses. Bucket three is for your growth investments. Those are for your long-term needs five, seven or 10 years from now. This approach provides several benefits. First, it ensures they always have the cash available to meet immediate expenses regardless of market conditions. Second,
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It allows their long-term investments to grow without the pressure of short-term withdrawals. And third, it provides a psychological comfort during market downturns, knowing they don’t need to sell their stock investments at a loss to cover their expenses. For Jack and Sam, this meant setting aside $120,000 in cash, which is that two years of spending needs times $5,000 per month.
another 180,000 in conservative investments like bonds and CDs, and then the remaining 700,000 was invested in a diversified stock portfolio for long-term growth. This structure gives them five years of spending needs against market volatility, dramatically reducing their sequence of returns risk. But perhaps the most powerful strategy we implemented was changing their withdrawal approach from the rigid 4 %
rule to what’s called a guardrail strategy. Instead of withdrawing the same inflation adjusted amount each year, regardless of performance, the guardrail approach adjusts withdrawals based upon portfolio performance. Retirement spending typically follows what’s called a spending smile. Higher spending in the early years, what we call those go-go years, and then lower spending in the middle of retirement, and then potentially higher spending
late in retirement due to healthcare costs. By incorporating this more realistic spending pattern into their plan, Jack and Sam can potentially increase their early retirement spending without compromising their security. Okay, so if we look at that, if we choose to want to delay our social security, we’re gonna have to fund our withdrawals from somewhere. And that’s gonna lead to these higher early withdrawal rates and then these really low
withdrawal rates later in retirement. So if we look at their cash flow needs here, once they retire, we see that we have no income coming in because they have no pension, they have no annuity, they just have their investment portfolio and their Social Security. So we have their Social Security starting at age 67. So we have their base expenses adjusted for inflation, how much they would owe in taxes, and then what the total outflows were. So this is what would need to be taken out of their investment portfolio.
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which I mentioned is much higher than the 4 % withdrawal rate. So how do we go about monitoring that? Well, what we do in our office is we have a retirement income guardrails, which gives you a, and I’ll just give you a high level overview. have other videos that go into this in detail, but basically what we do is we take your portfolio value and we give us an upper guardrail and a lower guardrail. And as long as our portfolio is between that upper and lower guardrail, it tells us,
how much we can spend on a monthly or annual basis, as well as when we need to make adjustments. So in this case, we have a 5.4 % distribution rate for the life of retirement. But in Jack and Sam’s case, they’re gonna need to take much more out like we saw in those early retirement years. So the guardrail system is gonna tell us if they do experience a downturn and they’re taking those higher withdrawals, when and
how they need to make adjustments to their retirement spending so they don’t experience that sequence of withdrawal risk. So this is how we find out, depending upon what their cash flow needs, as you can see, later in retirement, once their social security kicks in, the amount needed from their portfolio is significantly less than what their guardrails tells them they could spend. So depending upon how those first five years go, if they experience good returns,
Well, potentially in retirement after social security kicks in, they could spend much more than they actually could potentially want to, they thought they may need. So this increase potentially could increase them $6,000 a month versus that $5,000. Okay. So that’s how we use the retirement income guardrails to determine what their withdrawal rate is and how we can make adjustments.
to their retirement income spending. Now, we do have some high taxes here, and then you can see the taxes drop substantially because of the way Social Security is taxed. When implementing this guardrail strategy, something remarkable happens. Their probability of success increased to 100%, even though their ending portfolio decreased. This might sound counterintuitive, but it actually makes perfect sense. The goal of retirement planning,
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isn’t to die with as much money as possible. It’s to enjoy your retirement with confidence. That way, you won’t run out of money. This guardrails approach optimizes for this goal by allowing for more spending when it’s safe and less spending when we need to cut back. The next strategy that we want to look at involves optimizing their social security claiming strategy. Back in Sam, we’re planning to wait until age 67 to claim their benefits, which would give them
that 3,200 and 2,400 per month respectively. But our analysis showed that by having Sam claim at 67 and Jack delay till 70, they could actually increase their lifetime benefits and reduce the pressure on their investment portfolio during those critical early years. Now let’s address one of the biggest concerns for most retirees, healthcare expenses.
Jack and Sam are currently 60 and 59, which means they won’t be eligible for Medicare for several years. In the meantime, they’ll need to purchase private health insurance, which can significantly increase their monthly and annual expenses. Our analysis included approximately $12,000 per person per year for private health insurance until 65, plus those additional costs for Medicare premiums and out-of-pocket expenses.
that we talked about. By budgeting this cost separately from their living expenses, we’ve ensured that they wouldn’t get caught off guard by that healthcare expense. It’s worth noting that healthcare, though, is one of the biggest wild cards in retirement planning. Medical costs have historically increased faster than general inflation. And a single major health event can derail even the most carefully constructed retirement plan.
This is why we recommend maintaining adequate emergency reserves and considering long-term care insurance or alternative strategies to protect against catastrophic healthcare costs. Now, let’s talk about another critical aspect of retirement planning that most advisors often overlook, tax efficiency. Jack and Sam have all of their retirement savings in traditional IRAs, which means every dollar they withdraw will be taxed as ordinary income.
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And this could potentially reduce their spendable income, especially when we calculate that with Social Security. To address this, we need to look at what their potential tax plan looks like. So if we look at their income withdrawals and their taxes, we can see here their taxes are pretty high here initially in retirement. And that’s because all of their income has to come out of their IRA accounts. So their taxes later in life aren’t
really going to be that high compared to what you might think. So the first thing that we need to do is we need to take a look at, do Roth conversions make sense? And this is where a lot of people get tripped up. In today’s world, Roth conversions are the hottest topic in retirement planning. And every client thinks they should be doing Roth conversions, but we have to analyze what’s the right Roth conversion number. So if we come over to our
tax tab here, we can analyze what that Roth conversion potentially will look like. So first things we have to do is we have to determine how long are we going to live. Then we have to determine what is the terminal tax rate, which is going to be our beneficiaries tax rate. So for this example, we’ll put it in at 25%. Your beneficiaries could be a lot lower or could be a lot higher determining their situation. So then we have to determine what point, if at all,
Do Roth conversions make sense? So if we come up until the 10 % bracket, it could potentially give us a little bit more money. Then if we look to the 12 or 15 % bracket, it’s not giving us much more. Then if we go even higher, then we are actually gonna have less money in retirement. So that’s why it’s very important to have a
financial planner advisor that knows how to do tax planning because if you just blindly do Roth conversions, you could end up hurting yourself more than helping yourself. So if we look at that, if we do Roth conversions at all, it would only want to be up until the 10 % bracket, which would be basically zero or no Roth conversions. So in this scenario for Jack and Sam, we would recommend that they don’t do any Roth conversions.
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Now, if we take a look, well, how does that affect their social security? So what if we change their social security to as early as possible? That does lower their probability of success. Now, you know, I don’t always, I’m not always a fan of just delaying as long as possible. We have to test it and see what the actual difference is. Some clients, it gives them more confidence to actually go out and spend their money if they know all of their distributions are not coming from
their portfolio. So if we look at their cash flows here, we can see that by claiming Social Security early, this income now starts coming in. And this is kind of where we’re at with our distributions. So if we see here, our distributions are now falling basically right in our guardrail amount, which is that 54,000. So whether they take Social Security early or later,
we would still give them the green light that everything looks good from a distribution rate. Now this is kind of the peak of their guardrail and we would want to make sure that we monitor that. But as we can see, you know, the taxes are actually a lot higher doing this method. So, you know, instead of having high, high, high, and then really low taxes, it’s actually increasing their total taxes in retirement. So if you come back over to the tax…
strategy here. In that case, really doesn’t really make sense. in this scenario, what we would recommend to Jack and Sam is that you take your Social Security at full retirement age and don’t do Roth conversions, as this is going to allow us to have that much lower total taxes in retirement.
Okay, so we do have those higher years, but then we see it’s much lower. So then when we sum up all of these different taxes, it gives us a much lower tax rate in retirement. So what’s the bottom line? Is a million dollars enough to retire on? The answer, as with most financial questions, is it depends. For Jack and Sam, a million dollars is sufficient to support their desired lifestyle, but only with careful planning and optimization.
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without the strategies that we’ve discussed today, which are the three bucket approach, the guardrails withdrawals, social security optimization, tax planning, and realistic spending assumptions, that same million dollars might leave them vulnerable to running out of money or being forced to significantly reduce their standard of living. And this brings me to perhaps the most important point of this entire discussion. The amount of money
you have is only one factor of a successful retirement. How you manage that money, your withdrawal strategy, investment approach, tax planning, and spending decisions can have an equal or even greater impact on your total retirement outcomes. This is why the traditional focus on your big number, whether it’s $1 million, $2 million, or more, is fundamentally flawed.
Two people with identical $1 million portfolios can have dramatic different retirement experiences based on the strategies they implement and the decisions they make. So what should you do if you’re approaching retirement with a million dollars in savings? First, don’t panic. As we’ve seen with Jack and Sam, a million dollar portfolio can provide a comfortable retirement with the right approach. But also, don’t assume
that reaching that milestone means you can stop paying attention to your retirement. Instead, focus on optimizing what you have through these key strategies. Structure your investment. By implementing these strategies we’ve talked about today, you can potentially increase your retirement income, reduce your risk of running out of money, and enjoy a greater peace of mind in retirement. And if you want to learn more about
how to create a three bucket retirement portfolio that can potentially increase your income and reduce your risk of running out of money in retirement, I’ve created a detailed video that walks you through each step. In my next video, I show you how to properly structure the three bucket portfolio to protect your retirement against market volatility while still generating the income you need. Click the link right here to watch.
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how to build a three-bucket retirement portfolio and discover how this approach could transform your retirement.
