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The $1 Million Retirement Plan

The $1 Million Retirement Plan

Grab A Retirement Saver’s Tax Credit

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Figure out what your megabuck IRA will deliver in monthly payments.

You are now, let us suppose, 60 and planning to retire at 70. You’ve got $1 million stashed away. What kind of monthly draw does that get you?

Something like $3,830 aftertax, I calculate. That assumes the money is in an IRA or 401(k) and you are in a moderately high tax bracket. It’s more than you’ll be pulling out of Social Security, but not a huge amount more.

You may be disappointed with the $3,830, especially if you aren’t on target to have $1 million by age 60.

I explain my assumptions below. You may find them too pessimistic. If you do, plan on being able to live a little higher on the hog than I predict. But be forewarned that some experts consider my assumptions on investment returns to be too optimistic.

For the past 35 years investors have been living in paradise, with rising stock and bond prices. The next 35 years are sure to be less bountiful. The debate is about how much less.

What if the $1 million is in a taxable brokerage account? Then you are, paradoxically, better off than with the same money in a tax-sheltered account. I predict that the taxable account will deliver $5,120 a month, net of taxes. That’s a third more than a $1 million IRA or 401(k) is good for.

You may have thought that 401(k)s deliver a tax bonanza. They do and they don’t. You got a tax benefit when you put the money in. On the way out you’re going to get whacked. Turns out that $1 million in an IRA is worth less than $1 million under a mattress, at least for someone with the tax rates we’re using.

Third possibility: The $1 million is in a Roth IRA or Roth 401(k), which means it’s tax-free on the way out. Then you’ll have $6,390 a month to live on beginning ten years from now. That’s two-thirds more than you get from the pretax retirement asset. Something to think about when you wonder whether to convert an IRA into a Roth IRA.

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