Can you retire worry-free on $1 million?

Q: Is it true that you need $1 million saved to live through your 80s? If you withdraw 5% a year, that's just $50,000 a year.

A: A $1 million retirement kitty may work for some, but not for others. It all hinges on how much your expenses are, and how much you withdraw each year.

The only way to figure out your expenses is, well, to figure out your expenses. If you can live on $50,000 a year after taxes and Social Security, then $1 million is a good amount.

Figuring out how much to withdraw is tricky as well. You're using the 5% rule of thumb. Like most rules of thumb, the 5% rule has many, many exceptions. Let's take a closer look.

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The basic premise is that if you take a 5% initial withdrawal from your portfolio, you can increase that withdrawal by the amount of inflation each year without running out of money. It's an extremely conservative rule of thumb, because if you run out of money at 80, you have precious few ways to get more money.

How conservative is it? Suppose you started with $1 million, took out $50,000 at the beginning of each period, and earned 5% a year on your savings. Each year, you increased your withdrawal by 3% to offset inflation.

At the end of 20 years, you'd have about $430,000 left in your account, and your last withdrawal would have been $87,675 — which gives you some idea of how much inflation erodes your income.

Much of the calculation hinges on how much you earn, of course. You can't get a 5% return from bank CDs or money funds these days. In fact, if you earned just 1% a year on your portfolio — about what CDs pay now — you'd run out of money by year 17.

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For that reason, you need a mix of stocks, bonds and cash in your retirement portfolio. I! t's the only hope of getting a return of 5% or more over the long run. At current savings rates, your portfolio isn't going to outlive you.

You can also tweak your withdrawal rates, forgoing an inflation increase when your portfolio is down for the year –- or even a pay cut. But there's no single formula that will keep you from running out of money. In today's world, you have to manage your money just as carefully in retirement as you did while you were working.