Mark Henricks
·4 min read
A $10 million nest egg will pay for a comfortable retirement for the majority of retirement savers. However, whether that much is enough to fund any specific retiree’s golden years depends on a number of factors. This includes pre-retirement lifestyle and spending habits, the number of years a retiree will live after retirement and the returns earned on a portfolio of investments.
A financial advisor could help you create a financial plan to protect your retirement savings and reach your financial objectives.
Key Factors to Consider When Retiring With $10 Million
Funding a comfortable retirement is a project with a lot of moving parts. And, depending on your circ*mstances, it can be difficult to estimate with accuracy. However, you can calculate an approximate answer whether $10 million is enough for retirement by considering these four main factors:
Length of retirement. Perhaps the most vital piece of information when evaluating the sufficiency of a retirement nest egg is how long the money will have to last. This depends on two elements: When you retire and how long you’ll live. As with other key pieces of this puzzle, there are no firm figures. The average age of retirement is 64, but your date of retirement is up to you. According to theSocial Security Administration, the average 65-year-old can expect to live another 16.9 years if male and about 19.5 years if female. However, these are only averages and your life may be longer or shorter.
Expenses in retirement. How fast you spend your money clearly affects your retirement. Making a budget will help you answer this question. A Bureau of Labor Statistics study from 2020 found that the average annual expenditures of a household headed by a person aged 65 or older was $24,721 per year. Again, this is an average. Many factors influence retirement spending, with the most notable being your personal wealth and health.
Amount of income. Another vital matter is the rate of return on your investments. Based on recent returns, a $10 million portfolio could generate from a fraction of 1% to as much as 10%, equal to a few thousand dollars to $1 million per year, depending on your selection of investments. Of course, past returns are not necessarily indicative of future returns. However, a 5% return on a $10 million fixed-rate annuity, which is currently achievable with annuities, would produce a reliable $500,000 per year.
Withdrawal rate. Rather than subsisting entirely on investment returns, you can withdraw part of the principal. A traditional rule of thumb is to withdraw 4% per year. A plan for withdrawals is called a decumulation strategy and will consider factors ranging from your health to your plans for leaving a financial legacy to heirs.
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Retirement Unknowns
A $10 million retirement fund leaves a lot of room for variations in many of the key factors that control whether your retirement will be financially comfortable or challenging.
Losses due to legal troubles, failed businesses, financial abuse by trusted associates and excessively lavish lifestyles have produced similar economic disasters for any number of previously prosperous people. For those of more ordinary means, medical costs are often the most common cause of personal bankruptcy.
You should also take into account other universal uncertainties. The future course of taxes, inflation, interest rates and investment returns can impact your retirement portfolio. And therefore, you should rebalance your retirement investments and review your strategies accordingly.
Bottom Line
A retirement portfolio of $10 million will very likely cover the retirement needs of most people. Whether it’s enough to support a comfortable retirement for any given person depends on different factors. Important ones include age at retirement, life expectancy, lifestyle and spending habits and how much the portfolio earns. While many key elements can’t be predicted with certainty, and wild cards can also impact any financial plan, an eight-figure nest egg is likely to be more than enough.
Retirement Planning Tips
A financial advisor can provide expert insight into the preparation of a plan that will take into account the size of your retirement savings and expected circ*mstances in retirement.SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,get started now.
SmartAsset’s Retirement Calculator is a free and convenient way to get a handle on your financial situation in retirement. It considers your retirement age, income, location and other factors to tell how much you need in retirement savings.
Photo credit:©iStock/jacoblund, ©iStock/takasuu
The post Is $10 Million Enough to Retire? appeared first on SmartAsset Blog.
As an expert in personal finance and retirement planning, it's clear that the article by Mark Henricks on SmartAsset's Blog provides valuable insights into the critical considerations for retirees with a $10 million nest egg. The article delves into various factors that play a crucial role in determining the adequacy of a retirement fund, showcasing a depth of knowledge in financial planning. Let's break down the concepts used in the article:
-
Length of Retirement:
- The article emphasizes the significance of considering the duration of retirement. It mentions that factors like the age of retirement and life expectancy are crucial. The average life expectancy figures from the Social Security Administration are presented, acknowledging the individuality of these numbers.
-
Expenses in Retirement:
- Highlighting the impact of spending habits on retirement, the article suggests making a budget to understand the financial requirements. It references a Bureau of Labor Statistics study from 2020, which provides an average annual expenditure for households headed by individuals aged 65 or older.
-
Amount of Income:
- The rate of return on investments is discussed as a critical factor. The article indicates that a $10 million portfolio could generate varying returns based on the type of investments chosen. It wisely mentions the disclaimer that past returns are not indicative of future ones.
-
Withdrawal Rate:
- The concept of withdrawal rates is introduced, advocating a traditional rule of thumb of 4% per year. The term "decumulation strategy" is used to describe the plan for withdrawals, considering factors like health and legacy planning.
-
Retirement Unknowns:
- The article acknowledges the uncertainties surrounding retirement, such as legal issues, failed ventures, financial abuse, and unforeseen medical costs. It urges readers to consider universal uncertainties like taxes, inflation, interest rates, and investment returns when planning for retirement.
-
Bottom Line:
- The conclusion asserts that a $10 million retirement portfolio is likely sufficient for most people but underscores that the adequacy depends on various factors, including age, life expectancy, lifestyle, spending habits, and portfolio earnings.
-
Retirement Planning Tips:
- The article advises seeking the assistance of a financial advisor to create a comprehensive retirement plan tailored to individual circ*mstances. It introduces SmartAsset's free tool to match users with vetted financial advisors.
-
SmartAsset's Tools:
- References to SmartAsset’s free tools, including the tool that matches users with financial advisors and the Retirement Calculator, are included. These tools are presented as valuable resources for individuals planning their retirement.
In summary, the article provides a well-rounded exploration of the complexities involved in determining whether $10 million is enough to retire comfortably, and it encourages individuals to seek professional guidance in their retirement planning journey.
