Retirees Are Realizing A $1 Million Nest Egg at 62 Only Means $29,630 in Real Spending Power

"Age: 62 (earliest Social Security claiming age) Portfolio: $1 million in retirement savings Gap years: 3 years until Medicare eligibility at 65 Social Security penalty: 30% permanent reduction for claiming at 62 vs. full retirement age of 67 Key concern: Making savings last 25-30 years amid higher costs On Reddit's financial independence forum, one user noted the difference between retiring at 42 with $1.26 million versus 62 with the same amount, highlighting concerns about bridging the gap to Social Security and Medicare while preserving capital."

"According to Bureau of Labor Statistics data, $1 in 2016 now requires $1.35 to buy the same goods in 2026-35% cumulative inflation over a decade. For a retiree following the traditional 4% withdrawal rule, a $40,000 annual withdrawal from $1 million today has the purchasing power of just $29,630 in 2016 dollars. Morningstar analysts now recommend a 3.9% starting withdrawal rate for today's retirees, translating to $39,000 annually from a $1 million portfolio rather than $40,000."

"Ten years ago, the 10-year Treasury yielded around 2%. Today it sits at 4.30%. While higher yields benefit income-focused retirees, the transition hurt existing bondholders. The iShares 20+ Year Treasury Bond ETF (TLT) dropped 31% over the past decade as rates climbed. The S&P 500 gained 193.89% during the same period, highlighting the cost of being too conservative too early."

Retiring at 62 with a $1 million portfolio must address a three-year gap before Medicare and a 30% permanent Social Security reduction compared with full retirement age. Ten-year inflation of about 35% means $1 today buys what $0.74 did in 2016, shrinking real withdrawals: a $40,000 4% withdrawal now has 2016 purchasing power of roughly $29,630. Morningstar recommends a 3.9% starting withdrawal ($39,000). Higher interest rates (10-year Treasury near 4.3%) improve yields but caused long-term bond losses (TLT down 31%), while equities rose nearly 194%, underscoring sequence-of-returns and longevity risks. Healthcare costs before Medicare are an immediate concern; Medicare Part B premiums are $202.90 monthly in 2026.

Read at 24/7 Wall St.