Key Points
Many people struggle to save money for retirement, period. If you’re nearing the end of your career and are on track to retire with $3 million, you should be incredibly proud of growing your savings that well.
You may be wondering what life might look like with $3 million to your name. The answer is, it’s probably enough to enjoy retirement to the fullest, but you still need to be careful.
What a $3 million nest egg can do for you
The amount you can safely withdraw from a $3 million nest egg will hinge on how your assets are invested. If you have a relatively even mix of stocks and bonds, the popular 4% rule may be a good starting point for you. In that case, you’d get about $120,000 a year out of your retirement savings, plus whatever Social Security pays you.
The average monthly Social Security benefit today is about $2,084. But if you managed to save $3 million for retirement, your payday may be closer to the program’s max of $4,152 at full retirement.
If we split the difference, we’ll assume $3,118 a month in Social Security, which amounts to about $37,000 a year. Add that to your $120,000 in retirement plan withdrawals, and you’ve got yourself a $157,000 annual income.
That may not be quite enough to own two luxury homes and a boat. But if you have modest expenses, an income that large could leave you with plenty of room to travel, explore hobbies, and stay busy.
It could also mean that when things break, whether it’s your heating system, your washing machine, or your car, that you don’t have to panic. A salary that large could also make it possible to pay your various healthcare expenses without worry.
You still need to be cautious with withdrawals
Even though $3 million is a lot of money, it’s important to make sure your savings last. While a $120,000 annual withdrawal may be safe when the market is going strong, during downturns, it could pay to reduce portfolio withdrawals to avoid locking in losses.
Even then, though, you should have a lot of leeway. If you reduce withdrawals to $90,000 a year during a market crash, you still have $127,000 a year to spend when you factor in Social Security.
It’s also important to make sure your savings are equipped to keep pace with inflation. Growth ETFs, dividend stocks, and REITs could all be good candidates in that regard.
With $3 million, retirement is a period of life to look forward to. If you don’t go overboard on spending and adjust withdrawals during down markets, there’s a good chance you’ll have more than enough money to do all the things you want in your lifetime.
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