I Have $1 Million in My IRA. Is That Enough for Retirement?

Fidelity reports that the average IRA balance as of the fourth quarter of 2022 was $104,000. So if you have $1 million in your IRA, it means you've managed to sock away roughly 10 times what the typical saver has. And that's something to be incredibly proud of.

You might assume that once your IRA reaches the $1 million mark, there's really no need to save any more. After all, how much money will you need in retirement?

But the answer to that question will largely depend on your specific goals more so than anything else. And so believe it or not, you may want to push yourself to save beyond $1 million, depending on what you want your retirement to look like.

What does your dream retirement entail?

For some people, retirement means staying local, living frugally, and enjoying the company of neighbors, friends, and family. For others, it means frequenting the theater, dining at nice restaurants four nights a week, and traveling to different countries. If the latter description sounds more like what you want your retirement to look like, then you may end up disappointed in a $1 million nest egg.

Now, it may seem ridiculous that a $1 million savings balance would leave you short on funds for retirement. But remember, your retirement might span several decades if your health remains solid. And you'll want your savings to last the entire time.

That's why you'll need to withdraw from your savings carefully. You could use the 4% rule to land on the right withdrawal strategy. That would mean withdrawing 4% of your savings balance your first year of retirement and then adjusting future withdrawals for inflation. If you go with this withdrawal rate, you'll end up with $40,000 of annual income.

It's worth noting that these days, 4% is considered an aggressive withdrawal rate for retirement savings. It may be appropriate if you're retiring on the late side and don't need your savings to last too many years. But if you're retiring early or on time, it's risky.

In fact, the typical retiree today is probably best off sticking to a 2% or 3% withdrawal rate. That means getting $20,000 to $30,000 in annual income from a $1 million nest egg.

You'll also need to consider Social Security as part of your retirement income. Though benefits could be cut in the future, that's not set in stone.

Right now, the average Social Security recipient gets $1,827 a month, or about $22,000 a year. Whether that (plus $20,000, $30,000, or $40,000 a year from savings) is enough for you depends on, well, you.

You may want to save even more

A $1 million IRA balance is certainly nothing to scoff at. But if you want to give yourself even more options to spend money in retirement, then you may want to save beyond that point.

A relatively painless way to keep funding your IRA is to arrange for your contributions to transfer out of your checking account and into your IRA automatically each month. If you put the process on autopilot, you'll be more likely to stay on track.

And to be clear, you may be able to start contributing less to your IRA than you've been doing all along. If you've been putting $500 a month into your IRA but already have a $1 million balance, you may be okay to contribute $250 a month going forward. That could make it so you're able to grow your balance nicely, but also get more of your money to spend in the near term.