If you have several million to spare for retirement, you may still feel a little nervous about giving up a regular salary at age 50. After all, many resources people use for retirement such as traditional retirement accounts, Medicare and Social Security won’t be available to you for years – and the last thing you want to do is be forced to re-enter the labor market at age 70. Let’s see what you should consider if you retire at age 50 with $10 million.
If you want personalized help planning for your retirement, consider working with a financial advisor.
Is $10 million enough to retire at age 50?
Even in very difficult circumstances, it is almost impossible that $10 million will not be enough for you to retire at age 50. Even if you put the money in a checking account and didn’t use it to generate further returns, you could live on $200,000. a year for 50 years before running out.
And even conservative investments like certificates of deposit (CDs) and treasury securities can offer a significant income stream with this amount.
A well-planned investment portfolio will bring you a significant income without cutting corners on your capital and will assure you all your life, and then leave a lot to pass on to your loved ones.
That said, egregious expenses, unexpected financial difficulties, and other challenges could eat away at a large amount of money pretty quickly. Let’s take a look at some of the most common considerations even for a well-funded retirement.
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Prepare for the unexpected
Although $10 million is a lot of money, retiring at age 50 means you can plan for around 40 years of retirement if you expect to live to middle age. Even if nothing catastrophic happens to you or the economy in the meantime, inflation alone can dent what you can expect from your savings.
According to the US Bureau of Labor Statistics inflation calculator, $50,000 in April 1993 had the same purchasing power as about $105,000 thirty years later. This means that in 30 years, the value of your savings could be reduced by half.
Health issues and medical bills can also add up quickly, especially if they arise before you are eligible for Medicare. According to Fidelity, the average couple retiring at age 65 in 2022 should save about $315,000 for health care alone, and that’s with Medicare.
Although this is only a small portion of $10 million, you can see how medical care costs could quickly skyrocket and eat away at even large retirement savings.
Well budgeted
One of the fastest ways to lose money in retirement is to live beyond your means. Have a plan for how you’re going to spend your retirement money and stick to it.
If you want to spend lavishly in retirement, it’s entirely possible with $10 million. As mentioned above, even without investment income, you could easily spend $200,000 a year and not worry about your money disappearing before you die.
If you want to eat in good restaurants and buy nice clothes, it is easily within your reach.
But of course, a vacation in Europe, several houses, a collection of rare cars, or any number of things could drain your bank accounts very quickly. Use SmartAsset’s budget calculator to ensure you have a solid plan for your retirement expenses.
The importance of diversification
You may have already figured out that investing your $10 million is better than just leaving it in a checking or savings account. By investing your money wisely in a variety of assets, you can set yourself up for success.
Diversification means not putting all your eggs in one basket. Let’s say you leave your $10 million in a checking account, earning no interest, when you plan to live on $200,000 a year.
If your bank was Silicon Valley Bank, which went bankrupt earlier this year, you would receive $250,000 from the FDIC insurance. In other words, you would be high and dry.
The same basic principle applies to investing: don’t put all your money in one place. By diversifying where you put your money, you can minimize risk while generating excellent returns.
Generally speaking, high risk investments generate more money, while low risk investments offer lower returns. By diversifying your investments, you can have liquid resources, keep your risk relatively low, find ways to fight inflation and more.
Savvy tax planning
You’ll still pay taxes in retirement, so make sure you understand what you need to plan for. Social security benefits, pension income and investment income can all be taxed. Even distributions from tax-advantaged accounts like a 401(k) are taxable.
Taxes don’t affect your retirement as long as you plan for them. After all, the penalties and fees that can arise from not filing your taxes correctly can add up quickly and eat into your savings more than the taxes would have in the first place.
Get a head start on estate planning
Turning 50 may seem young to start making decisions about preparing a will. But there are negative results if you don’t plan ahead. If you don’t have a plan in place, the state can take control of your assets. This means that they cannot go to whom you intend them.
In addition to creating an estate plan (and reviewing it regularly), FINRA notes that gifting assets before death can benefit both you and the beneficiary.
Conclusion
Even with early retirement, $10 million should make your retirement years quite comfortable. By making sure you’re prepared for factors you can’t control, like inflation, medical surprises, and taxes, you can clock in at 50 for good without worry.
Tips for Retirement Savings
A financial advisor can help you take care of your finances when you retire. SmartAsset’s free tool connects you with up to three licensed financial advisors who serve your area. And you can ask your advisor correspondents for free to decide which one suits you best. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
How much do you need to save to fund your eventual retirement lifestyle? If you’re scratching your head at the question, consider using SmartAsset’s retirement calculator. This tool will tell you approximately how much money you’ll need in retirement and how much you’ll need to save each month to get there.
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Is $10 million enough for you to retire at age 50? appeared first on SmartAsset Blog.
