A nest egg of $10 million will pay for a comfortable retirement for the majority of savers. However, whether this is enough to fund a specific retiree’s golden years depends on a number of factors. This includes pre-retirement lifestyle and spending habits, the number of years a retiree will live after retirement, and the returns earned on an investment portfolio.
A financial advisor can help you create a financial plan to protect your retirement savings and achieve your financial goals.
Key Factors to Consider When Retiring With $10 Million
Funding a comfortable retirement is a project with many moving parts. And, depending on your situation, it can be difficult to estimate accurately. However, you can calculate an approximate answer if $10 million is enough for retirement by considering these four main factors:
Duration of the retreat. Perhaps the most important piece of information when assessing the adequacy of a retirement nest egg is the lifespan of the money. It depends on two things: when you will retire and how long you will live. As with the other key pieces of this puzzle, there are no hard numbers. The average retirement age is 64, but when you retire is up to you. According to the Social Security Administration, the average 65-year-old can expect to live another 16.9 years if male and about 19.5 if female. However, these are only averages and your life may be longer or shorter.
Retirement expenses. The rate at which you spend your money clearly affects your retirement. Making a budget will help you answer this question. A 2020 Bureau of Labor Statistics study found that the average annual expenditure for a household headed by someone age 65 or older was $24,721 per year. Again, this is an average. Many factors influence retirement spending, the most notable being your personal wealth and your health.
Amount of income. Another key question is the rate of return on your investments. Based on recent returns, a $10 million portfolio could generate a fraction of 1% to 10%, which equates to a few thousand dollars to $1 million per year, depending on your investment selection. Of course, past performance is not necessarily indicative of future performance. However, a 5% return on a $10 million fixed rate annuity, which is currently achievable with annuities, would produce reliable income of $500,000 per year.
Withdrawal rate. Rather than living off the returns entirely, you can withdraw some of the capital. A traditional rule of thumb is to withdraw 4% per year. A withdrawal plan is called a disbursement strategy and will consider factors ranging from your health to your plans to leave a financial legacy for heirs.
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Unknowns of retirement
A $10 million retirement fund leaves plenty of room for variation in many key factors that determine whether your retirement will be financially comfortable or difficult.
Losses from legal trouble, failed businesses, financial abuse by trusted associates, and excessively lavish lifestyles have produced similar economic disasters for a number of previously successful people. For those with more ordinary means, medical bills are often the most common cause of personal bankruptcy.
You must also consider other universal uncertainties. Future changes in taxes, inflation, interest rates and investment returns can affect your retirement portfolio. And therefore, you should rebalance your retirement investments and revise your strategies accordingly.
A retirement portfolio of $10 million will most likely cover most people’s retirement needs. Whether that’s enough to support a comfortable retirement for any given person depends on a number of factors. Among the most important are retirement age, life expectancy, lifestyle and consumption habits, and portfolio income. While many key elements cannot be predicted with certainty, and wild cards can also impact any financial plan, an eight-figure nest egg will likely be more than enough.
Retirement Planning Tips
A financial advisor can provide you with expert insight into preparing a plan that will take into account the size of your retirement savings and your expected retirement circumstances. SmartAsset’s free tool connects you with up to three licensed financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
The SmartAsset Retirement Calculator is a free and convenient way to get an idea of your financial situation in retirement. It takes into account your retirement age, income, location and other factors to determine how much you need in retirement savings.
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