What do different sized nest eggs mean your financial security? Having several hundred thousand dollars saved is a huge accomplishment, but do you know the sustainable annual income those savings will support?
Let’s take Abimelech: He is aged 66 ish, eligible for his full Social Security benefit. The average Social Security payment in 2021 was $1,658/month or about $19,900/year pre-tax.
If Abimelech retires this year with $300,000 saved, using a 4% withdrawal rate on investments, his beginning retirement income would be $31,900/year.
Starting retirement with the 4% withdrawal rate allows Abe to give himself raises through a 25-year retirement and accounts for low expected returns.
What if Abimelech had started saving very young, and very consistently and managed to put away $1,000,000? Using the same formula, he would have an income of $59,900/year pre-tax.
Is this enough? It depends on Abimelech’s spending. If his mortgage payment is $2,000/month, there isn’t much left for even necessities in the first calculation. Not much left for fun in the second example. However, if Abimelech’s spending needs are lower, the $300,000 saved could be the perfect amount.
The point if this exercise is to translate a nest egg (whatever the size bird that laid it) to monthly income. A person may spend $60,000/year, have $3,000,000 saved, $40,000/year coming in for Social Security and pensions, and worry about money needlessly. Or a person may think a $150,000 inheritance at age 40 means early retirement.
Talk to a financial planner to get real about what your numbers mean in terms of your desired lifestyle.
