Though it was released in the 1980s, the song, “If I Had a Million Dollars” has been an enduring hit. In it, the founding members of the Barenaked Ladies list all of the things they plan on purchasing with their extravagant wealth: limousine rides, a house, priceless art, and a green dress. 

At least, that’s what the Canadian rockers thought a million dollars would look like in 1988. And the song certainly speaks to how people equate a million dollars with vast wealth. But what will a million dollars look like in 2040?

The question is more than academic. Many Americans use this figure to set a nice, round retirement goal. But thanks to inflation, the value of every dollar is shrinking. Here’s what a million dollars could look like by 2040 and what that means for your retirement plan.

“Many people think about risk in various ways. Investors think about it in terms of capital loss, whereas Wall Street professionals often measure risk in terms of volatility, or standard deviation,” says J.D. Joyce, president of Joyce Wealth Management. “While these are both measures of risk, it is important to factor in another measurement of risk called inflation risk. If you have your goals set on having a million dollars at the time of retirement, it is important to keep in mind that fixed investments such as bonds or CDs, if held to maturity without default, eventually mature at face value of the underlying security. In times or rising inflation, receiving the original investment at maturity, along with coupons or interest along the way, might not keep up with the cost of inflation. This is why one needs to consider a diversified portfolio that includes investments such as equities or stocks that have the potential to increase at a greater rate than inflation. If a portfolio isn’t allocated in such a way, one might outlive their money, and that is why asset allocation is critically important to long-term success,” J.D continued. 

With what J.D. stated and what we have seen recently when we faced inflation head on, it’s really essential to understand what the costs of various expenses will be when 2040 does arise.  

The Future of the U.S. Economy

If history is any indicator, Americans can expect some rough seas ahead, economically speaking. The U.N. Secretary-General António Guterres’ predicted that the 2030s could bring “a global recession that could wipe out decades of development.”

Others predict that the 2030s will feature a repeat of the “Great Depression” of America’s past.

Regardless of the particulars, the next 20 years could bring additional inflation and other economic instability that weakens the power of the U.S. dollar. This economic forecast should encourage you to be prepared for the road ahead.

What Will $1 Million Be Worth in 2040?

If you had a million dollars in 2040, what could you buy? The answer depends on the average inflation rate for the next 17 years. Pandemic-related inflation reached a peak of 9.1% in 2022 — the highest increase since November 1981. 

Thankfully, rates have declined since then, but inflation will likely continue to play a role in the rise of consumer prices. 

Here’s what you might expect from consumer prices in 2040. These numbers are based on two estimates. The first estimate will assume an average rate of inflation of 3% between now and 2040, while the second will assume an average rate of inflation of 6%. A good goal is to be ready for both as they come.

Grocery Bills

Your mileage may vary, but the average two-person household spends between $510 and $820 per month on groceries. 

By 2040, that comes to:

• 3% Inflation: $840 to $1,355 per month
• 6% Inflation: $1,373 to $2,208 per month

If you retire with $1 million, how much food can you buy? Your groceries could end up costing as much as $26,496 per year (at 6% inflation). Stretch that over 20 years, and you burn through half of your nest egg on food alone ($529,900). 

“If you’re skeptical about how much the increase in groceries will become, take a look at any of the individual items you’re purchasing at a major grocery retailer, such as Vons,” says Leonard Kim of AdvisorCheck. “When you start to pay attention to the prices, you will see that they have gone up exponentially over the past few years (and the price increases are not going to stop there, either.)

Health Insurance

As of 2023, the average cost of health insurance is $456 per individual per month, though the exact premiums can vary widely depending on your location or if you have a family policy. 

Still, using this as a baseline, what will health insurance cost in 2040?

• 3% Inflation: $754 per month
• 6% Inflation: $1,228 per month

Retirees may be relying on Medicaid to cover healthcare costs, but these figures may still illustrate what to expect for any out-of-pocket expenses that you may incur. Besides, who knows what shape Medicaid will be in by 2040?

Prescription Drugs

According to Georgetown University’s Health Policy Institute, adults over the age of 65 pay $456 per year for prescription medications. Adults over the age of 80 pay even more.

By 2040, seniors could find themselves paying the following:

• 3% Inflation: $754 per year
• 6% Inflation: $1,228 per year

This also assumes that the rate of inflation will apply evenly across all sectors. For example, the average price of prescription drugs increased by 8.5% from July 2021 to July 2022. And some drugs increased by a jaw-dropping 500%. Depending on your medical needs, you could be facing massive costs in 2040.

Cars

By 2040, electric vehicles will likely be the norm. Kelley Blue Book (KBB) currently reports that the average cost of an EV is $61,488. But assume that EV prices will eventually be comparable to a standard combustion engine. KBB places these vehicles at an average cost of $49,507. 

Using the latter number, what might a car cost in 2040?

• 3% Inflation: $81,828
• 6% Inflation: $133,311

This means that the purchase of a new vehicle could take well over 10% of your total million-dollar nest egg. 

Car Insurance

Currently, the average rate of car insurance is $124 per month, though rates vary by your type of coverage and location. By 2040 this works out to:

• 3% Inflation: $205 per month
• 6% Inflation: $334 per month

Don’t forget that this is in addition to the cost of any repairs or maintenance you perform on your vehicle (which will no doubt cost more too).

Gas

Gas prices vary widely depending on the time of year and your exact location. In January 2023, AAA reported that gas prices rose to a national average of $3.50 per gallon. 

Here’s what you might be paying in 2040:

• 3% Inflation: $5.80 per gallon
• 6% Inflation: $9.40 per gallon

Thankfully, the rise of electric vehicles could make these prices negligible by 2040.

Dining Out

Food prices vary widely, of course, but assume for a second that dinner for two at your favorite restaurant costs $50, including the tip. This means that by 2040, you could be paying:

• 3% Inflation: $83
• 6% Inflation: $135

And if you’re going out to a nice restaurant, you might want to double that.

Housing

By the end of 2022, the average cost of a house had risen to $348,079, with some states having rates that were higher still. By 2040, this cost can easily rise to:

• 3% Inflation: $575,322
• 6% Inflation: $937,298

Yes, this means that your $1 million might not be enough to cover the total cost of a new home by 2040.

Mortgage Premiums

The Mortgage Bankers Association reports that the median mortgage payment has now risen to $2,009 per month. Assuming that the housing market follows the 3% to 6% inflationary pattern, here’s what that could end up costing in 2040:

• 3% Inflation: $3,321 per month
• 6% Inflation: $5,410 per month

Additionally, borrowers may also face higher administrative fees and insurance costs when they buy a house in 2040.

Rent

If you can’t afford to buy a house in 2040, you might be better off renting. As of 2023, the average cost of rent is $1,702 per month. What will that cost in 2040?

• 3% Inflation: $2,813 per month
• 6% Inflation: $4,583 per month

Again, this assumes that rates will follow current inflationary projections. In 2022, rent increased by 6.7%, which may signal rising costs and high rates of increase in the future.

Utilities

Energystar.gov reports that the average family spends $2,060 on utilities each year, which includes electricity, water, sewer, and gas. By 2040, these costs may climb to:

• 3% Inflation: $3,404 per year
• 6% Inflation: $5,557 per year

Of course, “smart” thermostats and other technology will make homes more energy-efficient than ever before, which could contribute to savings on your utility bills.

Long-Term Care Insurance

Retirees should especially consider long-term care insurance, which is designed to cover medical care for the senior population. As of 2023, the average cost of long-term care insurance is $2,220 per year.

By 2040, this cost could rise to:

• 3% Inflation: $3,669 per year
• 6% Inflation: $5,978 per year

This is partly due to the fact that the care itself will be higher in cost (see the section above on prescription drugs).

Pets

If you have a dog, you currently spend anywhere from $40 to $290 per month on food and veterinary care. What will your furry friends cost you in 2040?

• 3% Inflation: $66 to $479 per month
• 6% Inflation: $108 to $781 per month

Cats are a bit cheaper, but only by about half.

How Much Do I Really Need for Retirement?

Are you sensing a pattern? If you expect to retire on $1 million, it’s not nearly enough. As it is, Americans are already raising their retirement expectations to $1.25 million — a 20% increase since 2021.

But even that may not be enough. Depending on your exact plans, you may need more than double that: $3 to $4 million in retirement. That only highlights the need for careful planning.

That’s especially true when it comes to tax planning. Proper tax management is critical to growing your investments and ensuring that you have what you need for the future. A financial advisor can guide you through this process and help you plan and manage your taxes as you look toward the future.

Start Your Planning Today

AdvisorCheck can help you find a financial advisor to help you plan for your retirement. Start by using the search tool to connect with financial professionals in your area and plan your roadmap to retirement. Create a free AdvisorCheck membership to get access to all of our money tips so that you can take care of your finances from today until the day you are no longer here. 

Written by John Boitnott, Motley Fool, Entrepreneur Magazine and Due Contributor

Fact checked by Billy Quirk

Reviewed by KJ Kim

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