In 2022, the last year for which there’s data available, the average retirement savings balance for 65- to 74-year-olds was about $609,000, according to the Federal Reserve. Now stock market gains have likely bolstered that average balance in the past three years.
But still, if you’re retiring with $3 million, you’re clearly well ahead of your peers. A $3 million nest egg gives you the leeway to spend money on the things you’ve always wanted to do — especially if you’re also getting a generous monthly Social Security check.
Still, a $3 million nest egg needs to be managed carefully. You don’t want to blow that money or risk running out of savings in your lifetime.
What annual income can a $3 million nest egg give you?
The amount of annual income you get out of $3 million in savings depends on how your portfolio is invested. If you’ve got a fairly even mix of stocks and bonds, you may be safe to use the popular 4% rule, which has you withdrawing 4% of your balance your first year of retirement and adjusting future withdrawals for inflation.
If we apply a 4% withdrawal rate to $3 million, we get $120,000 a year. That doesn’t include inflation adjustments, but it also doesn’t include taxes.
Unless you have your $3 million in a Roth, the IRS is going to get a piece of your withdrawals. So it’s important to plan for that tax bill.
Of course, your $3 million nest egg may not be your only retirement income source. Chances are, you’ve got a decent Social Security check coming your way if you managed to accumulate $3 million in savings.
The average monthly benefit today for retirees is about $2,000. You may be looking at more like $3,000 a month if you’re a higher earner.
If we meet in the middle at $2,500, that’s $30,000 a year in Social Security combined with about $120,000 a year from your $3 million nest egg, giving you an annual income of $150,000.
Of course, that 4% withdrawal rate assumes a certain investment mix. You may be able to take larger withdrawals if you’re more heavily invested in stocks. A more conservative portfolio, however, may limit you to a 3% withdrawal rate.
Your retirement age matters, too. If you’re in your 60s, the 4% rule generally works, assuming you have a pretty even stock/bond split. An early or late retirement should change your approach to taking withdrawals.
What lifestyle can a $3 million nest egg support?
If we assume that you’ll be looking at a roughly $150,000 retirement income between withdrawals from savings and Social Security benefits, that could be enough to live pretty comfortably, especially if your home is paid off and your essential bills aren’t extraordinarily large.
An income that large may be enough to support several nice trips a year, or a smaller trip every month. It may also be enough to pay for ample entertainment, like streaming services, dining out, and other activities.
On the other hand, a $3 million nest egg may not be enough to buy you a second home (especially not a luxury one) or four months of expensive international travel every year. A lot of that will depend on how certain unavoidable expenses eat into your income. These include healthcare, taxes, and home maintenance and repairs.
Will a $3 million nest egg buy you your dream retirement?
Whether $3 million leads to the retirement you’ve always wanted depends on your needs and goals. If you want to live a very lavish lifestyle, $3 million may not be enough. If you’re happy with a comfortable lifestyle, it may be more than enough.
All told, you should be able to enjoy retirement pretty nicely with $3 million. But make sure to manage that money well. That means coming up with a smart withdrawal rate based on how your portfolio is invested, and continuing to budget so you’re stretching your income nicely.
It could also pay to sit down with a financial advisor or tax professional if you don’t have your retirement savings in a Roth account. They can help you work through different strategies that could help minimize taxes so you can keep more of your savings for yourself.
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