Originally Posted By: cashmoney
Retire on $1 million 401K is possible if you have no other debt. That means pay off your house. And remember that $1 million in a 401k is not actually all yours. You have to pay income tax on it as you take funds out. So careful planning needs to happen if you want to minimize tax bills in retirement. Also careful planning is required on blending Social Security with 401k.
In some cases in may make sense to spend down 401k funds first and delay taking any SS until age 70. This is because delayed SS payments go up 8% a year past 65 until a person has to take it at 70 yo. This is a fairly complex strategy and takes a hefty 401k fund to start off but it is workable alternative. Also depends on age bracket. At some point in the future SS fund is going to go broke but for current folks very near retirement age it will be fine. If I was 40 yo I would not be counting on SS to fund much of my retirement.
Everything I've seen indicates to draw no more than 4% from your fund, in order for it to last. That's $40k/year. I don't feel like figuring out what the Fed tax rate is for $40k/year, but between that and state/local taxes that would be rather meager income I'd think afterwards. Not to mention, inflation. Ouch. Rule of 72? Take 72, divide by the interest rate, to find the time to double? I heard the Fed was going to limit inflation to 2% but they didn't indicate exactly how they were going to do that. At 3 to 5% inflation a retiree has to figure the cost of everything will double during their retirement. [When I say $40k/year is meager, I mean, looking at my perspective, when everything quadruples in price when I retire--$40/year then is like $10k/year in today's money.]
Personally I'd love to aim for my 401k to pay for my needs, then (hope?) use my SS for pocket money. That would be nice. But that whole inflation thing is a real variable that is beyond anyone's control.