$1 Million Saved for Retirement? 3 Ways To Help It Go Further
For many Americans, saving $1 million for retirement is the ultimate goal. This amount may or may not actually be enough to fund your retirement -- based on a number of factors ranging from your lifestyle to your age and longevity -- but if you've reached this goal, you're definitely ahead of the game when it comes to averages.
Recent data has shown that many soon-to-be retired Americans have significantly less saved than the recommended amounts from experts. So, if you've got $1 million tucked away for your retirement, you've done some great work.
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But once you reach that goal, how do you preserve -- or even grow -- that balance during your retirement? And what steps should you take once you reach that lofty sum? Read on for the best tips depending on your own personal financial situation.
Assess Your Needs
Depending on your financial needs in retirement, $1 million may either be more than enough to fund your lifestyle, or it may come up woefully short. In consultation with your financial advisor, only you can make this determination.
For example, do you intend to travel the world, give generously to family and charity, and spend the rest of your days eating gourmet meals at brand-new restaurants? Or do you plan to downshift your lifestyle, primarily staying home with friends and family and picking up a local, low-cost hobby? These are obviously two rather extreme examples, but the point is that your lifestyle will be one of the greatest single impacts on your retirement nest egg.
Take an honest assessment of your wants and needs in retirement and try to translate those choices into a real-world budget. Compare your retirement budget with your nest egg and see if you need to make some adjustments to ensure that you don't outlive your money.
Don't Get Too Conservative
Regardless of how long you think you'll live in retirement, you don't want to make the mistake of getting too conservative with your investments. Even if you may estimate that you only have a 10-year retirement ahead of you, that's still a long time to stretch your money once you factor in inflation and taxes.
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For example, even at a relatively low inflation rate of 3%, goods and services will cost you around 34% more in just 10 years. That means you'll either have to spend 34% more if you want to keep the same quality of life, or drop your lifestyle expenditures by about one-third. If you happen to outlive your life expectancy and spend 20 years in retirement, your cost of living will be more than 80% higher.
If your investments are too conservative, you won't keep up with the cost of inflation. This is why many financial advisors recommend retirees keep at least a moderate amount of their nest egg in growth instruments like stocks, depending on their risk tolerance.
Factor In Your Social Security Strategy
If you qualify for Social Security, that can greatly extend the life of your retirement nest egg. But you'll have to construct a sensible claiming strategy to maximize your benefits.
For example, although you can claim benefits as early as age 62, if you do so, you'll be permanently reducing your payout by about 30%. If you can wait until age 70, your benefits will jump by 24% over the amount you'd receive at your full retirement age of 67.
You should also factor in any benefits that your spouse may receive, and whether or not your benefits will be taxable. You should also consider the possibility that Social Security benefits may be cut in the future. All of these variables are best discussed with a financial and/or tax advisor.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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