Saving for retirement is a struggle for many people. Between mortgage payments, medical bills, and other living expenses, it’s pretty easy to let go of IRA or 401(k) contributions.
If you retire with $800,000, that means you’re in better financial shape than many Americans who don’t have an income. retirement savings at all. But it’s important to know how much annual income a nest egg of this size will provide you.
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In this regard, there is no single answer. But here are some scenarios that may apply to you if you have an $800,000 nest egg.
An $800,000 savings balance may seem like a lot of money. But remember, the money needs to last throughout your retirement. It is therefore important to withdraw your savings carefully.
If we use the popular 4% rulean $800,000 nest egg could give you $32,000 in annual income, without accounting for inflation adjustments. However, it’s not a given that a 4% withdrawal rate is right for you.
If you’re retiring early or your portfolio is very conservatively invested, a 4% withdrawal rate may be too aggressive. If that’s the case and you decide a 3% withdrawal rate is safer for you, that leads to an annual income of just $24,000.
On the other hand, you may have a significant portion of your retirement portfolio in the stock market and retire in your late 60s or early 70s. In this case, a 5% withdrawal rate is something you can feel comfortable with, giving you an annual income of $40,000.
When you save a large amount of money for retirement, whether it’s $800,000 or some other sum, it’s easy to assume that it will be more than enough. But it’s important to determine a withdrawal rate that works for you and to have an idea of how much annual income your savings could earn you.
Of course, there’s a good chance you’ll receive additional income in the form of Social Security benefits. So the income you get from your nest egg may not be your only source of retirement.
But it’s important to make sure your savings can support the lifestyle you want. Otherwise, you may need to rethink your lifestyle plans or consider delaying retirement. Working a few extra years could give your savings enough of a boost that you don’t have to change your plans.
