Many seniors retire with little to no savings and wind up heavily reliant on the benefits they receive from Social Security. That's not a good thing, though, because those monthly benefits generally will not come close to replacing your pre-retirement paycheck in full. That's why it's so important to do your part to save independently.
Now Motley Fool research finds that the median retirement savings balance among Americans aged 55 to 64 is $185,000 as of 2022, while the median balance among those aged 65 to 74 is $200,000. But what if you're heading into retirement with a lot more money than that?
It may be that thanks to years of diligent savings and shrewd investing, you're approaching retirement with an IRA balance of $3 million. And you might assume that if so, you're set for life.
But is that the case? Maybe, or maybe not.
You need to be mindful of your spending no matter what
It's reasonably fair to say that someone with a $3 million IRA is less likely to run out of money in retirement than someone who's only saved $200,000. But one thing you must realize is that no retirement plan balance is immune to being depleted.
If you don't pay attention to your IRA withdrawals and take them whenever the mood strikes, you may, in time, end up depleting a $3 million nest egg. And on the flipside, if you're careful in how you approach your savings, you might manage to make a $200,000 IRA balance last for 20 years or more.
Come up with a withdrawal rate that works for you
One good way to stretch your retirement savings -- no matter what that balance amounts to -- is to come up with a withdrawal rate that makes sense for you before you start tapping your nest egg. For years, financial experts swore by the 4% rule, claiming it would greatly reduce your chances of depleting your savings in your lifetime.
You may want to follow that rule in the context of managing your nest egg. But if you feel your savings might need to last longer than the average person's (say, because you're retiring early or have a family history of longevity), then going with a 3% withdrawal rate could be a better bet. You may also want to sit down with a financial advisor, review your estimated retirement expenses and goals, and work together to land on a withdrawal rate that's optimal for you.
You'd think that retiring with $3 million would put you in a pretty sweet spot. And for the most part, you are. But that doesn't mean you're automatically set for life with $3 million to your name. You will need to be mindful of your withdrawals if you want that money to last throughout retirement. But thankfully, a few simple calculations on your part could make it so that the savings you've worked hard to build end up being there for as long as you need them to.