Nearing Retirement With a Ton of Savings? Here's Why That Money May Not Go as Far as Expected

The average person in their 60s has $112,500 socked away for retirement, according to Northwestern Mutual. But hopefully, if you're nearing retirement, you have a lot more money than that.

But let's say you have a pretty impressive $1 million sitting in your IRA or 401(k). Are you set for life? Not necessarily. In fact, you may find that your nest egg doesn't go nearly as far as expected, even if you're kicking off retirement with a nice amount of cash socked away.

Why you might end up with less income than anticipated

It's easy to look at a large IRA or 401(k) balance on screen and assume you're in a good spot. But remember, you're supposed to withdraw from your savings at a fairly conservative rate if you want that money to last for decades, and it very well might have to.

So, let's say you withdraw from your savings at a rate of 4% per year, which is what financial experts have long recommended people do. In that case, a $1 million nest egg translates into $40,000 of annual income.

That's not no money. And remember, the money in your brokerage account is in addition to Social Security, which you may be entitled to. But it may not be enough to buy you the retirement lifestyle you want, especially if it involves a lot of expensive activities, like travel.

Inflation could become an issue, too

Many consumers today are sensitive to inflation because it's been so rampant over the past couple of years. Usually, inflation is more moderate, but even so, it tends to be persistent. And over time, your buying power in retirement might shrink because of it.

Consider this: A grocery haul costing $163 today would've cost just $100 back in 2004. So as such, a $163 grocery load today might cost, well, a lot more in 20 years, depending on how inflation trends.

If you're nearing retirement now, it's conceivable that you'll still be buying groceries in 20 years' time. But your savings could lose a lot of buying power during that time.

Consider working as a retiree

If you want to make sure that you'll be able to live comfortably in retirement, and that milestone is right around the corner so padding your nest egg isn't much of an option, then one thing you may want to plan on doing is working part-time once your primary career comes to an end. If you join the gig economy or find a part-time job that fits nicely into your schedule, it'll be a good way to supplement your savings and gain more buying power.

Of course, working during retirement won't necessarily be possible on a perpetual basis. If you're 65 now, it's conceivable that you may be in strong enough physical shape to hold down a part-time job for another five to 10 years. But will working be feasible in your 80s? Maybe not.

So take advantage now. Unfortunately, even a really nice-sized nest egg may not go so far in retirement, especially if yours ends up being longer. But boosting your income with wages from a job could make your financial situation a lot more promising.

You may also find the idea of work refreshing as a retiree. An interesting gig could give you something to do with your days. And best of all, you'll have the flexibility to explore different options. If your first attempt at a job doesn't suit you, you can quit and start up with something else. Since the money is extra, there's not a ton of pressure, so you can really take the time to find a job that's the right fit.