5 Things You Must Do When You Have $1 Million Saved for Retirement
For many Americans, saving $1 million for retirement is the ultimate goal. This amount may or may not actually be enough to fund your retirement — based on a number of factors ranging from your lifestyle to your age and longevity — but if you’ve reached this goal, you’re definitely ahead of the game when it comes to averages.
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According to a 2022 Vanguard study, the average account balance for those between 55 and 64 was roughly $256,000, while the median account balance was just about $90,000. So, if you’ve got $1 million tucked away for your retirement, you’ve done some great work.
But once you reach that goal, how do you preserve — or even grow — that balance during your retirement? And what steps should you take once you reach that lofty sum? Read on for the best tips depending on your own personal financial situation.
Assess Your Needs
Depending on your financial needs in retirement, $1 million may either be more than enough to fund your lifestyle, or it may come up woefully short. In consultation with your financial advisor, only you can make this determination.
For example, do you intend to travel the world, give generously to family and charity, and spend the rest of your days eating gourmet meals at brand-new restaurants? Or do you plan to downshift your lifestyle, primarily staying home with friends and family and picking up a local, low-cost hobby? These are obviously two rather extreme examples, but the point is that your lifestyle will be one of the greatest single impacts on your retirement nest egg.
Take an honest assessment of your wants and needs in retirement and try to translate those choices into a real-world budget. Compare your retirement budget with your nest egg and see if you need to make some adjustments to ensure that you don’t outlive your money.
Perform a Longevity Check
Along with the lifestyle you choose to live, your lifespan should be an equally important component of your retirement planning calculus. Of course, no one knows with certainty how long they will live, but by using the best available information you can factor in an estimated lifespan to your retirement planning.
For example, if everyone in your family tree has lived to be over 100 and you pride yourself on living a healthy lifestyle, you can estimate that you’ll likely live longer than the average retiree. However, if you find yourself in poor health, have chronic health problems and/or have short-lived ancestors, you might prepare for a shorter lifespan.
You’ll want to build in a sizable buffer, of course, but you can use guidelines like these to help construct your retirement planning equations.
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Don’t Get Too Conservative
Regardless of how long you think you’ll live in retirement, you don’t want to make the mistake of getting too conservative with your investments. Even if you may estimate that you only have a 10-year retirement ahead of you, that’s still a long time to stretch your money once you factor in inflation and taxes.
For example, even at a relatively low inflation rate of 3%, goods and services will cost you around 34% more in just 10 years. That means you’ll either have to spend 34% more if you want to keep the same quality of life, or drop your lifestyle expenditures by about one-third. If you happen to outlive your life expectancy and spend 20 years in retirement, your cost of living will be more than 80% higher.
If your investments are too conservative, you won’t keep up with the cost of inflation. This is why many financial advisors recommend retirees keep at least a moderate amount of their nest egg in growth instruments like stocks, depending on their risk tolerance.
Factor In Your Social Security Strategy
If you qualify for Social Security, that can greatly extend the life of your retirement nest egg. But you’ll have to construct a sensible claiming strategy to maximize your benefits.
For example, although you can claim benefits as early as age 62, if you do so, you’ll be permanently reducing your payout by about 30%. If you can wait until age 70, your benefits will jump by 24% over the amount you’d receive at your full retirement age of 67.
You should also factor in any benefits that your spouse may receive, and whether or not your benefits will be taxable. You should also consider the possibility that Social Security benefits may be cut in the future. All of these variables are best discussed with a financial and/or tax advisor.
Don’t Overlook Insurance Needs
An important step in long-term retirement planning is having the right insurance in place. Although retirees aged 65 and older are entitled to Medicare, that government insurance program doesn’t cover all healthcare costs. You’ll also want to consider long-term care insurance — also not covered by Medicare — and other personal insurance, such as an umbrella policy if you have extensive assets.
The last thing you want to do is put your $1 million retirement nest egg at risk for claims that insurance should be able to cover.
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This article originally appeared on GOBankingRates.com: 5 Things You Must Do When You Have $1 Million Saved for Retirement