Some might think that having $4 million is enough for a luxury retirement, but with so much economic uncertainty, it makes sense to ask this question. One of the trickiest elements of retirement planning is figuring out how much savings to aim for. It’s virtually impossible to come up with a precise estimate of what retirement will cost because there are too many unknowns, from inflation to longevity to what health care will cost. So when it comes to setting a savings target, the best thing many of us can do is guess at a number and run with it.
Of course, there’s some data on how much money it might take to afford a comfortable retirement. Northwestern Mutual recently found that $1.46 was the magic number. And there's also guidance out there that you can adjust for your personal situation. Fidelity, for example, recommends having 10 times your ending salary saved by age 67.
If you’re 60 and have $4 million saved for retirement, you may be wondering where you stand and what retirement might look like if you were to wrap up your career immediately.
The truth is that a $4 million nest egg gives you a lot of leeway. But it’s important to ask yourself what you want retirement to entail.
You can spend comfortably, but cautiously
Reaching age 60 with $4 million doesn’t mean you’re ready to retire. And if you enjoy your job (or at least don’t mind it), there’s no reason you have to.
At the same time, you’re probably in a place where you can concentrate less on funding your nest egg during your remaining time in the workforce and more on spending your earnings on things that bring you joy. From there, you could decide to transition into retirement at age 62, which is when Social Security benefits become available (albeit at a reduced rate), or at 65, when Medicare eligibility generally begins.
But that still begs the question of what sort of retirement lifestyle $4 million will buy you. And on a basic level, you’re probably aware that it could mean living pretty comfortably.
If you adopt the 4% rule to manage your nest egg, $4 million in savings gives you an annual income of $160,000, not accounting for additional income streams you have access to (which, at a minimum, probably includes Social Security). From there, the options that income buys you depend on your goals and expenses. You could also try using the guardrails approach, which sets different withdrawal rates for each retirement phase, as many people want to spend more in early retirement when they are healthy.
If your home is paid off and your health care needs are modest, you may find that you have more than enough money to keep busy to your heart’s content, whether that means enjoying the theater once a week or dining out at local restaurants regularly.
There’s probably ample room for travel during retirement, too. You may not be jetsetting off to Europe every month with $4 million in savings. But it may be more than possible to take several modest trips, or one or two luxury trips, per year without going overboard.
That said, a $4 million nest egg isn’t the same as $14 million. You’ll need to monitor your spending and portfolio to ensure that you’re living within your means and that whatever level of spending you start out with is sustainable.
Think about what you really want
Some people live frugally in retirement, not because they’re worried about running out of money, but because they’re content with a modest lifestyle. You should know that if you’re nearing retirement with $4 million, there’s no rule stating you have to spend all of that money in your lifetime.
You may, in fact, find it fulfilling to spend some of your savings on yourself, but to use a portion of your nest egg to better the lives of others — the so-called "Die with Zero" rule. That could mean starting a 529 plan for your grandchild or making regular donations to a charity you’ve long supported.
The nice thing about a $4 million nest egg is that you shouldn’t have to pinch pennies in retirement or worry about minor unplanned expenses that arise. Even major surprises — like a new roof or transmission for your vehicle — shouldn’t be more than a source of irritation with that much money to your name (assuming, of course, that they happen fairly infrequently).
And that’s really your most important takeaway. You could use your $4 million to travel the globe or spend your days reading and gardening, and the end result is the same. As long as you manage your withdrawals carefully, you should be able to wade through retirement with the peace of mind that comes with knowing you have your expenses covered.
