For many Americans, saving $1 million for retirement is the ultimate goal. This amount may or may not be enough to fund your retirement – based on a number of factors from your lifestyle to your age and longevity – but if you reach this goal, you will definitely ahead of the game when it comes. on average.
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According to a 2022 Vanguard study, the average account balance for those between 55 and 64 is about $256,000, with a balance of about $90,000. ‘the median account. So, if you have $1 million set aside for your retirement, you’ve done a great job.
But once you reach that goal, how do you maintain — or even increase — that balance during your retirement? And what steps should you take when you reach that big amount? Read on for the best tips based on your own financial situation.
Assess your needs
Depending on your retirement financial needs, $1 million may be enough to fund your lifestyle, or it may be too short. Only you can make that decision in consultation with your financial advisor.
For example, do you plan to travel the world, give generously to family and charity, and spend the rest of your days eating delicious food at new restaurants? Or are you planning to change your lifestyle, especially staying at home with your friends and family and taking in local and affordable entertainment? Of course, these are two extreme examples, but the reality is that your lifestyle will be one of the biggest influences on your retirement nest egg.
Get an honest assessment of your retirement wants and needs and try to translate those options into a realistic budget. Compare your retirement budget to your nest egg and see if you need to make any adjustments to make sure you don’t overspend.
Do a long-term follow-up
Along with the lifestyle you choose to live, your life expectancy should be an equally important factor in your retirement planning calculations. Of course, no one knows exactly how long they will live, but by using the best information you can, you can estimate your retirement age.
For example, if everyone in your family tree lived to be over 100 and you pride yourself on living a healthy life, you can estimate that you may live longer than the average retiree. However, if you are in poor health, have chronic health problems and/or have short ancestry, you may be setting yourself up for a shorter life expectancy.
You want to build in a big buffer, of course, but you can use these guidelines to help build your retirement plan.
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Don’t Be Too Conservative
No matter how many years you expect to live in retirement, you don’t want to make the mistake of being too conservative with your investments. Although you may estimate that retirement is only 10 years ahead of you, that’s still a long time to stretch your money once you factor in the cost of living and taxes.
For example, even at a relatively low inflation rate of 3%, goods and services will cost you around 34% more in just 10 years. This means that you have to spend 34% more to maintain the same quality of life, or reduce your living expenses by a third. If you happen to outlive yourself and spend 20 years in retirement, your cost of living will increase by more than 80%.
If your investments are too conservative, you won’t keep up with inflation. This is why many financial advisors advise retirees to keep at least their nest egg in growth instruments such as stocks, depending on potential tolerance.
Factor in your social security strategy
If you qualify for Social Security, you can significantly extend the life of your retirement nest egg. But you have to build a serious claim strategy to maximize your benefits.
For example, although you can claim benefits as early as age 62, doing so will reduce your wages by about 30%. If you can wait until age 70, your benefits will increase by 24% on your full retirement age of 67.
You should also think about the benefits your spouse may receive, and whether or not your benefits are taxable. You should also consider the possibility that your Social Security benefits will be cut off in the future. All of these changes are best discussed with your financial and/or tax advisor.
Don’t forget the need for insurance
Having the right insurance is an important step in long-term retirement planning. Although retirees age 65 and older are eligible for Medicare, this insurance program does not cover all medical costs. You’ll also want to consider long-term care insurance — not covered by Medicare — and other personal insurance, such as an umbrella policy if you have a lot of assets.
The last thing you want to do is put your $1 million retirement nest egg at risk by claiming it should be covered by insurance.
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This article originally appeared on GOBankingRates.com: 5 Things You Must Do When You Have $1 Million Saved for Retirement