I Thought I'd Be Set, But My $3 Million Isn't Buying the Retirement I Imagined. What Should I Do?

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Question: I thought I'd be set, but my $3 million isn't buying the retirement I imagined. What should I do?

Answer: The larger a nest egg you have when you kick off retirement, the more comfortable your senior years are likely to be. Recent Northwestern Mutual findings point to $1.26 million as the ideal retirement savings target. However, Vanguard's latest data on retirement savings puts the average 401(k) balance among Americans 65 and over at just $299,442, while the median balance for that age group is only $95,425.

If you’re sitting on a $3 million nest egg, it’s fair to say that you not only have more savings than the typical retiree, but you should also, in theory, have plenty of options for stretching that money. If you use the popular 4% rule to manage withdrawals from your nest egg, that leaves you with an annual income of $120,000, not accounting for inflation adjustments or whatever monthly benefit Social Security pays you.

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But what if you can’t help but feel that $3 million isn’t buying you the retirement you want? Maybe the cost of travel is more than you anticipated. Maybe you’re just too scared to spend your money in retirement and you’re limiting yourself because of that.

It’s important to get to the root of the issue and improve your retirement outlook. Here’s how.

Reassess your expenses

When you envision a certain retirement lifestyle, it can be tricky to adapt to a different one. But with a little flexibility, you might manage to not only stretch your nest egg further, but feel better about your financial situation on the whole, says Greg Giardino, CFP, CPWA, vice president and financial adviser at Wealth Enhancement Group.

“If you’re discovering your portfolio isn’t going as far as you would like it to go in retirement, your first place to turn to for reassessment should be your expenses,” he says. Giardino recommends making small, permanent spending cuts to the tune of 3% to 5% rather than a large, temporary cut.

“This is a more sustainable and realistic way to stick to a change in lifestyle,” he says.

Giardino recommends starting with discretionary expenses first, like travel, gifts and home improvements. From there, you can look at your recurring living expenses and see if there’s any wiggle room to lower them.

Get comfortable with spending

Unless you aim to live a truly extravagant lifestyle in retirement, there’s a lot you can do with $3 million. If you feel a nest egg that size isn’t cutting it, it may be that you do have enough money to cover your needs and wants, but you’re afraid to spend it.

As Giardino says, “Breaking the habit of saving for decades to now spending can be a difficult and scary adjustment. Reframe your thinking by focusing on why you saved diligently for all those years — to give yourself permission to spend and live the retirement that you deserve.”

If need be, Giardino says, work with a financial planner to establish a safe withdrawal rate. He also suggests starting with smaller portfolio withdrawals and increasing spending as your comfort level improves.

He also suggests setting intervals to re-evaluate your spending, whether semi-annually or annually. From there, he says, “You can conservatively increase the annual dollar amount you are spending by a few percentage points to encourage further spending.”

Faron Daugs, CFP, wealth adviser, founder and CEO at Harrison Wallace, has similar advice: “While $3 million may feel like more than enough for most retirees, today's economic challenges with inflation and higher interest rates are proving that may not be the case.”

He suggests using a strategy he calls the “retirement paycheck.”

“We set up a fixed monthly withdrawal from investment accounts to replicate the feel of a regular income,” he explains. “In tandem, we create a separate ‘personal dividend’ bucket for discretionary spending like vacations, a second home or hobbies. This structure brings discipline and reassurance but also grants permission to enjoy your wealth.”

Achieve your retirement goals

It’s natural to be worried about running out of money in retirement. But for some retirees, it’s not just a matter of fear — it’s a matter of guilt. Daugs insists it’s important to push those feelings aside so you can enjoy the money you worked hard to save.

“I had a retired client come in wanting to buy a boat,” Daugs shares. “He had more than enough savings but felt guilty about the purchase. We ran the numbers six different ways and eventually, what gave him comfort wasn’t just the math, but realizing he had earned the right to enjoy life. Over 10 years later, he still says it was one of his best decisions.”

You may be eager to not spend all of your money in retirement so you can leave an inheritance or reserve ample funds for your later years, when your health-care costs might increase. But there are ways to achieve these goals without denying yourself the retirement you’ve always wanted, and a qualified financial professional can offer guidance in that regard.

As Daugs says, “Retirement is not just about preserving capital. It’s about using it with intention and joy.”

Maurie Backman is a freelance contributor to Kiplinger. She has over a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. She has written for USA Today, U.S. News & World Report, and Bankrate. She studied creative writing and finance at Binghamton University and merged the two disciplines to help empower consumers to make smart financial planning decisions.