No two retirements are the same. If two people have the same amount of money saved in similar accounts, retire at the same age, and their retirement lasts the same number of years, there could still be huge differences in what each retirement looks like.
Two reasons for this are that everyone spends money differently, and one person may have more health-related expenses in retirement than another.
So even with $2 million in the bank, it's nearly impossible to predict what your retirement will look like. But if you're on track to have $2 million saved before you stop working, you'll be much further along than most retirees.
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How $2 million compares to other retirees
With $2 million in the bank, you probably won't be jet-setting in your private plane, but you will have a lot more money to spend than the average retiree does.
Recent data from Vanguard shows that the average retirement account balance -- including in a brokerage account -- for people aged 65 or older was $232,710 in 2022. Based on this average, someone with $2 million in the bank would have more than eight times the amount saved than the average retiree.
That amount of money is also far more than the average person thinks they need to comfortably retire. A recent Northwestern Mutual study found that Americans believe they need $1.27 million in savings to retire well.
So if you're wondering what your retirement life would be like with $2 million compared to the average retiree -- it's looking pretty good.
Your retirement savings could last longer
As I mentioned earlier, there's no hard-and-fast rule for your retirement because everyone spends their money differently. This also means there's no guarantee for how long your savings will last, even if you have $2 million.
But, assuming you don't buy a yacht or private island in retirement, we can apply some general rules to see how long the $2 million will last based on average annual spending.
For example, according to the Bureau of Labor Statistics, the average retiree spends about $52,141 annually. Meanwhile, a $2 million retirement account will provide you 25 years of $80,000 in annual income -- based on the 4% retirement rule.
In general, the rule says that you should only withdraw up to 4% of your retirement savings each year, and adjust for inflation annually, to make your savings last for about 30 years. The rule has come under increased scrutiny lately because of rising inflation, but can still be used to estimate how long your funds may last.
So, you could either spend $80,000 per year to make your retirement savings last about 30 years, or you could spend an average of about $52,000 and have your money last even longer. Of course, these are just estimates, but for those with $2 million in the bank, you could potentially retire a little earlier than most people.
Consider what you want your retirement to look like
Whether you end up with $2 million in your retirement account or less, having a plan to save for retirement will help you stay on track. For example, Vanguard says that employees who are auto-enrolled in a retirement plan save up to 40% more than those who aren't.
When deciding how much to put toward your monthly retirement contribution, consider how you plan to spend your retirement and where you may want to live, and factor in health-related expenses.
If you're having difficulty coming up with your own estimates, consider hiring a financial advisor to help guide you through the process. Or, if you prefer to do things on your own, you can try using a robo-advisor.
And remember, every retirement looks different. It's better to begin putting some money into a retirement account -- no matter how small the amount -- rather than giving up because you feel too far behind.
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