You’d be surprised how much $3 million can buy you for retirement

How long will $3 million last in retirement?

How long $3 million will last you in retirement depends on your spending habits and investment returns. While your spending behavior is largely under your control, some costs, such as B. health spending, not perfectly predictable. While you can probably expect investment returns to be similar to those of the past, there can be no guarantee that future performance will match historical returns. Still, a $3 million nest egg will be enough to fund a comfortable and secure retirement in most cases. If you need help developing a retirement plan, you should speak to a financial advisor.

Lifetime estimate of $3 million in retirement savings

The level of spending and the return on investment are the two factors that determine how long your retirement savings will last. Here are three scenarios with different spending and investment approaches that illustrate how the relationship works.

The conservative approach

A 65-year-old retired couple with $3 million might plan to withdraw 3% of their total living portfolio during their first year of retirement, and then adjust their withdrawals for inflation in subsequent years. The safe RTP is often set at 4%, so a 3% RTP provides an extra margin of safety. This pair, too, is cautious about a 6% annual return on their investment. That too is at the low end of the historical range for a diversified investment portfolio.

A 3% withdrawal rate on $3 million is $90,000 in the first year. Adjusted for subsequent inflation, this amount can fund a comfortable, if not lavish, retirement lifestyle in most communities. At a 6% yield, her conservatively invested $3 million portfolio will generate $180,000 annually if all goes according to plan. This conservative approach to spending and investing makes it likely that the couple's retirement nest egg will remain in place indefinitely.

The middle-of-the-road approach

Another 65-year-old couple with moderate spending plans and a medium risk tolerance expects to withdraw 4% of their living expenses each year. They invest more heavily in stocks, which tend to be more volatile than fixed income securities but tend to generate higher returns over time. The pair forecast an 8% annual return on their investments.

This approach allows them to spend $140,000 annually and earn $240,000 in investment income. Like the first couple, in most cases they will never run out of money.

The aggressive approach

A free-spending couple, also 65 years old, plans to withdraw 12%, or $360,000, of their capital each year. To help them make a decent income, they invest more aggressively hoping to earn 10% per year, which equals $300,000.

In this scenario, the couple's expenses exceed their investment income. As a result, in about 16 years they will empty their retirement fund. For their savings to last about 25 years, they would need to consistently earn 12% from their investments, which is well above the long-term average.

Extend the life of your retirement savings

How long will $3 million last in retirement?

How long will $3 million last in retirement?

To extend the life of their retirement savings, retirees can spend less or earn more. Of these two options, spending is the one that is easier to control. Many retirees are pursuing strategies such as downsizing, moving to an area with a lower cost of living, and traveling during the cheaper off-season.

However, it is still possible to incur unexpected costs that can result in spending over budget. For example, healthcare is a spending category where large bills can come in without warning.

The other approach is to invest more aggressively to earn more. This can be achieved through an asset allocation that invests a larger percentage of the portfolio in higher-yielding assets, particularly stocks, rather than safe-haven assets like bank certificates of deposit that may not even be able to keep up with inflation.

Higher returns from more aggressively invested portfolios are not guaranteed and carry greater risk. However, equity-heavy portfolios have outperformed bond-heavy asset allocations for several decades.

You can also extend the term of your pension fund by opening up other sources of income. For example, these scenarios do not take into account social security benefits. Most people are eligible for these payments, which allow you to maintain your standard of living without draining your retirement fund as quickly. You may also be receiving income from an annuity or annuity, or may choose to work part-time in retirement.

bottom line

How long will $3 million last in retirement?

How long will $3 million last in retirement?

A $3 million portfolio will likely be enough to allow a retired couple to spend appropriately and invest with moderate caution without fear of running out of money. However, if spending escalates too much, it's entirely possible to deplete a $3 million portfolio in well under 30 years.

Retirement planning tips

  • To help you develop a plan to finance a safe and comfortable retirement, you should speak to a financial advisor. Finding a financial advisor doesn't have to be difficult. SmartAsset's free tool connects you with up to three verified financial advisors operating in your area, and you can interview the appropriate advisors for free to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

  • Location can be just as important in retirement as it is with real estate. When deciding where to spend your retirement, SmartAsset's cost of living calculator can help you compare locations. Enter your current location, the city you want to move to, your household income, and a few more details. You will learn how much higher or lower the costs will be at the new location and how much you will need to earn to maintain your lifestyle there.

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