What Retirement Really Looks Like With $3 Million in Savings

In 2022, the most recent year there’s data available, the average American aged 65 to 74 had about $609,000 in retirement savings, according to the Federal Reserve. If you’re retiring with $3 million in savings, it means you have roughly five times the amount of money as the typical senior.

A $3 million retirement nest egg buys you a lot of options, especially when coupled with other income streams. But it’s still important to manage your money wisely.

How much annual income can a $3 million portfolio generate?

The amount of money you can safely withdraw each year from a $3 million portfolio hinges on factors that include your retirement age and investment mix. But assuming a fairly even mix of stocks and bonds and a retirement date in your 60s, you may be safe using the popular 4% rule.

In that case, a $3 million portfolio gives you access to $120,000 a year in income, plus adjustments for inflation. But that may not be your only income available.

If you earned a typical wage, you may be eligible for about another $25,000 a year in Social Security based on the average retirement benefit today. But if you managed to save $3 million, chances are, you earned above-average wages. So it would probably be fair to assume that you’ll have another $36,000 a year from Social Security at a minimum.

This assumes that you’re single. If you’re married, you might automatically have 1.5 that amount due to spousal benefits.

But if we stick to a single assumption, it means you’re probably looking at around $156,000 a year, not including adjustments for inflation and other income streams you may have. That’s certainly a comfortable income. But you still need to be careful.

What kind of lifestyle can $3 million in savings support?

For some people, an annual income of about $156,000 is more than comfortable. But whether that’s the case depends on how much money you were used to earning during your career.

If you have a paid-off home and live in an area that’s not super expensive, an income that size could leave you with plenty of money for leisure, travel, and charitable giving. However, you do need to be mindful of a few pitfalls.

First, there’s taxes. If your savings are in a Roth IRA or 401(k), that’s less of an issue. But if you’re withdrawing from a traditional retirement plan, you could be looking at a pretty large tax bill each year, especially once required minimum distributions start. Plus, in that case, you should expect to pay taxes on your Social Security benefits.

There’s also healthcare to consider. Medicare Part B premiums cost $202.90 a month this year for most enrollees. With an income as high as yours, though, you’re likely looking at surcharges that drive your costs up.

For a single person this year, an income above $137,000 and below $171,000 adds $202.90 to the cost of Medicare Part B, doubling your costs to $405.80 per month. And surcharges can apply to Part D premiums, too.

You need a comprehensive plan

With $3 million saved, you have many options for your retirement. But it’s important to manage your money wisely and be mindful of surprise expenses — mostly, taxes and healthcare costs.

You may also want to work with a financial professional to come up with a comprehensive plan. With $3 million saved, you have a number of investment strategies you can employ. You could focus on total returns in your portfolio or annuitize some of your savings for guaranteed income.

The choices you make should depend on your needs and goals, and there’s no one-size-fits-all solution. So the best bet is to sit down with a professional who can understand your concerns and help you figure out what you want out of retirement. From there, you can work together to maximize the impressive amount of savings you’ve built.