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So You've Saved $1 Million for Retirement. Now What?

By Maurie Backman - Updated May 11, 2021 at 10:34AM

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Amassing $1 million for your senior years is an impressive feat, but your work isn't done there.

For many people, retiring with $1 million is a goal worth working toward. And if you've managed to save $1 million -- say, by socking funds away from a young age and investing your money wisely -- you may now have a world of financial flexibility to look forward to during your senior years.

Or do you? While it may seem like a $1 million nest egg should allow you to retire without a care in the world, the reality is that you'll still need a plan for managing that money. Here's how to do so -- and ensure that your nest egg serves you well.

What does a $1 million nest egg really mean?

Let's be clear -- $1 million is a lot of money. But in the context of what could be a 30-year retirement or more, it may not last as long as you'd like it to.

An older man and woman at a laptop, smiling.

Image source: Getty Images.

In fact, your first step in managing a $1 million nest egg should be to establish an annual withdrawal rate from savings that you're comfortable with, as that will dictate how much yearly income that pile of cash will actually give you. For many years, financial experts have advised using the 4% rule, which states that if you withdraw 4% of your savings balance your first year of retirement and then adjust future withdrawals for inflation, your savings should last 30 years.

However, the 4% rule isn't perfect. Not only does it assume a fairly even stock-bond mix, which your portfolio may not contain, but it also assumes you want your savings to last for 30 years. But if you're retiring in your late 50s and have a family history of longevity, you may need more like 35 to 40 years of income. And if you're retiring in your 70s and only think you'll live until your mid-to-late 80s, then you may only need your savings to last 15 to 20 years. As such, you'll need to decide what withdrawal rate works best for you.

From there, you'll have to run the numbers to see how much annual income you'll get to enjoy based on that withdrawal rate. Say you decide to be somewhat conservative and remove 3.5% of your savings each year. With a $1 million nest egg, that means you get $35,000 of annual income. You'll need to then see how much Social Security income you're in line for to figure out what your total income looks like (and also factor in other income sources you may be privy to, like payouts from a pension or earnings from a business you own).

Of course, depending on where you're housing your savings, you may not get to keep your withdrawals in full. If you have your money in a traditional IRA or 401(k) plan, your withdrawals will be subject to taxes so that a $35,000 annual income may be whittled down to well under $30,000 by the time the IRS gets its share. On the other hand, if you keep your savings in a Roth IRA or 401(k), the IRS won't get to touch your distributions.

Manage your money wisely

Retiring with $1 million puts you in a strong position to cover your bills and enjoy your senior years to the fullest. But don't assume you'll automatically be all set with that $1 million nest egg. Rather, figure out what withdrawal rate works for you and how much income that translates to. You may need to make some adjustments if that $1 million sum ends up giving you less freedom than expected.

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