Financial
FOCUS
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by Nick Ibanez, CFP®
Wealth Advisor, Linscomb & Williams
22 | Mv | July + August 2021
HOW LONG
s $1 million enough to live on? For that matter, how can one know that any amount is “enough?” The answer may surprise you. There are several factors that can determine how long – or how short – $1 million (or any amount for that matter) will actually last. Some studies conclude it’s around 20 years, on average. The real answer? It depends. If not managed properly, a golden nest egg can become a short-lived payday. Despite how long it took you to amass this much, $1 million can disappear very quickly. When determining how much a client needs to retire, our team at Linscomb & Williams looks at several factors. Your Spending Habits As you probably guessed, your spending habits are one of the most important inputs to estimating your probability of financial success. If you can keep your spending under control, your nest egg will last longer. Obviously, the more you spend, the more you’ll need. Further, when you take this money from your retirement plan, the more it costs.. When you withdraw from your retirement accounts, not only are you depleting your reserves from the direct withdrawals themselves, but you are also diminishing the ability to accumulate more investment earnings by selling off some of your capital. Certain spending is necessary. The biggest expenses for retirees are hous-
ing, transportation, and healthcare. For most families, it is not the necessities of spending that create a problem; more often, it is the discretionary decisions about spending. Your city Location, location, location. Like real estate, the value of your $1 million can be greatly affected by where you live. The cost of living you experience in the area where you live and ultimately retire influences your spending, tax picture and your overall savings. A high-cost address can take a serious bite out of your financial longevity. For example, a budget of $50,000 in Atlanta, Georgia, could decrease to $45,407 in Houston, Texas. Cost of living in Houston is lower, allowing your available dollars to go further. These considerations are more important now that employers are increasingly more open to remote work arrangements. Locations such as California or New York can make an even bigger difference, with higher costs for housing alone. Think wisely about the long-term financial ramifications of where you choose to live, especially during retirement. THE LENGTH OF RETIREMENT The general consensus is that the sooner you can retire, the better. That may be true, but this is not necessarily the case for your finances. A longer retirement requires careful financial manage-
