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Take These 5 Steps ASAP to Retire With $5 Million

Even though $5 million is a significant sum, having a nest egg that size for retirement still requires that it be handled in a prudent manner. Here are several ways to make sure that such an amount covers your wants as well as needs after you've stopped the 9-to-5 routine. One of the wisest moves you can make to ensure that you can do what you want in retirement is to work with a financial advisor in developing a retirement roadmap to guide you for the two or three decades you'll be drawing on that nest egg.

Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.

If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Step One is making a plan. That's something many retirees, including wealthy ones, don't do. According to Northwestern Mutual’s 2020 Planning & Progress Study, nearly half (40%) of U.S. adults don’t have a clear idea of their current spending limits now versus what their spending limits will be later. They are unsure of where to draw the line so that they can save for later. As a result, 27% report holding back while another 22% spend without knowing and hope they still have enough. The study also found that 71% of Americans feel that their financial plan could use improvement, but only 29% work with an advisor.

Creating a financial plan starts with creating a retirement budget. That can reveal if your $5,000,000 can cover the type of lifestyle you plan to enjoy for the next 20 or 30 years. The budget should account for basic living expenses including housing, food, utilities and transportation, as well as healthcare, hobbies and travel. If you have no idea where to begin, review your current spending patterns.

Try tracking your spending for at least six months and then ask yourself some key questions, such as:

  • Is what you’re spending now likely similar to what you’ll spend in retirement?

  • Are there any expenses you have now that may increase or decrease when you retire? Any that could disappear altogether?

  • Are there expense categories you don’t have now that you might add to your budget when you retire?

These questions will provide insight into what it will cost to maintain your standard of living in retirement and help you decide a realistic draw down rate. Sometimes experts recommend withdrawing 4% of your retirement assets or less each year to ensure the money lasts. Assuming you have $5,000,000 in retirement, you could realistically withdraw $200,000 your first year of retirement. That amount would shrink incrementally each subsequent year, assuming zero portfolio growth.

Consider Downsizing

There are several reasons to considering downsizing. It reduces your expenses. Mortgage payments or rent are lower. Continuing expenses like insurance, maintenance, repairs and property taxes are less in a smaller residence.

It may reflect your decreased need for space to live in retirement. Perhaps you had children who needed space to play and enough room for all your memories to grow. But as a retiree, your children will likely have homes of their own.

You may even be considering downsizing for your health and mobility. After all, falling is a major hazard for those 60 and older; living in a one-story home promises fewer risks than a multi-story property for those in retirement.

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Move to Save

If your estimated retirement budget exceeds your expected retirement income, you may consider relocating to a more affordable area to reduce expenses. When evaluating budget-friendly retirement spots, consider:

  • Median housing costs

  • Cost of renting vs. buying

  • Median healthcare costs

  • Access to healthcare

  • Crime rate

  • Recreation and amenities

  • Location, weather and climate

Compare which states are the most retirement-friendly and fit into your price goals. For example, the cheapest states to buy a home centralize in the mid to southeast region of the U.S. The top four include West Virginia, Arkansas, Alabama, and Mississippi. However, looking at the states with the lowest taxes, Florida is a big contender with cities like Tampa, Jacksonville, and Miami, partially thanks to its lack of income tax. Neither list really intersects, which shows the varying benefits a state may have. On one hand you’ll have lower taxes, on the other cheaper housing. There are even five states that have done away with statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

Alternately, you might look into heading overseas. Malaysia, Panama and Slovenia and consistently rank among the cheapest places to retire, while enabling you to soak up a new culture. But if you’re planning an overseas retirement, be sure to do your research. In addition to considering the cost of living, check any legal requirements for establishing residency in your chosen country. Weigh your options for healthcare and look into potential tax implications associated with claiming Social Security benefits or withdrawing money from investment accounts from afar.

Make Sure Your Money Keeps Working for You

Money should never retire. It’s tempting, for example, to keep your funds in a standard checking account. It’s a separate location to store your money. But instead of simply putting away your money, you could dedicate some of it to investment. One of the easiest ways is with a savings account. They’re usually a low-risk, low-yield option, but you can improve your earnings with a high-yield savings account instead. Compared to a savings account that offers an interest rate between 0.01% and 2%, high-yield savings accounts typically have interest rates from 1% to 2.2%. A higher interest rate will also help you keep up with inflation. Look for one with low fees.

Alternatively, there are money market accounts, which are a compromise between a checking account and a savings account. They allow you to access and withdraw your money but still earn a higher interest rate. A high-yield money market account may earn nearly 2% in interest.

And these are only two savings opportunities you can use to build money passively. Other investment options may work better for your long-term goals, so consider the risk level and yield you want.

Eliminate Credit Card Debt

Avoid unnecessary debt. Pay off the entire balance due each month on credit card debt. Interest rates well above 20% are not uncommon. If you're hit with a big charge consider taking out a personal loan. These usually have lower interest rates and premiums than credit cards. By getting rid of your credit card debt, you will create new financial opportunities. You can put that money towards your retirement savings and help bulk up your funds.

The Bottom Line

Having $5 million at the end of your working years creates a financial cushion. You can live a comfortable life, enjoy yourself along the way, bounce back from the occasional unexpected costs and leave something for your loved ones or favorite charities. The key is to have a financial plan, predicated on a realistic budget. After that consider downsizing or moving - or both. Make sure your funds are working hard for you and keep a lid on unnecessary and excessive debt.

Retirement Tips

  • Consider talking with a financial advisor who can help you work through retirement planning issues. Finding one doesn't have to be hard. SmartAsset’s match-up tool pairs you with up to three local advisors in just a few minutes, making finding the right help the easiest part of your retirement planning. If you're ready, get started now.

  • Use a retirement calculator and Social Security calculator to estimate how to allocate your $5 million, or whatever the amount is. If you experience a major life change, run the new numbers through the retirement calculator for an updated outlook.

Photo credit: ©iStock.com/AscentXmedia

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