Are You a Millionaire? 6 Key Signs That You Cannot Retire Yet
Not too long ago, being a millionaire in America meant that you were rich. Millionaire status carried with it the idea that you could live comfortably and retire well. Today, however, being a millionaire may not get you as far as you’d hope financially. With cost of living increases and high inflation, you may need more than you think to retire the way you always dreamed.
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Before you call it quits at your 9-to-5, you will want to make sure that you have saved enough money to live without financial concerns in your golden years. Here are six signs that you cannot retire yet, despite having $1 million in the bank.
Retirement Planning: Whether you're planning for retirement, dealing with a significant life event or simply looking to make smarter financial decisions, a financial advisor can offer the expertise and guidance you need. Here are some compelling reasons why you should consider a financial advisor -- even if you're not wealthy.
Your Retirement Savings Are in a 401(k) or Traditional IRA
An important thing for hopeful retirees to remember is that certain retirement accounts have serious tax implications.
Matt Hylland, a financial planner at Arnold and Mote Wealth Management in Cedar Rapids, Iowa, explained, “If your million dollars is all in tax-deferred retirement accounts, like a traditional IRA or 401(k), that full account balance is not really yours. Because these accounts are taxed when you withdraw, Uncle Sam will want his share of the account when you begin to spend.”
You’ll want to plan your retirement withdrawals from these accounts carefully, so you don’t lose more of your money to taxes than necessary.
Hylland added, “Your exact tax rate will depend on many things, of course, but for many retirees, that $1 million dollar retirement account may only mean $800,000 or less after factoring in federal and state taxes that will come due. If you will be in a high federal tax bracket or are in a high-tax state, you’ll want to understand what portion of your retirement accounts will go towards taxes.”
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You Have Significant Healthcare Costs
When you are retired, you may have limited income. This means that you will want fixed costs as much as possible, so you can adequately budget and not overspend.
“Without the right types of health insurance or long-term care insurance, medical expenses can cost hundreds of thousands of dollars over the course of a typical retirement,” Hylland said. “If you are not planning for increased medical expenses or budgeting the monthly costs for a solid supplemental Medigap insurance policy, a large chunk of your $1 million may not be able to go toward the more fun retirement goals you have in mind.”
Be sure to figure our your healthcare costs in advance, and aim to save more if you think they will run high.
You Haven’t Factored in Inflation
Soaring inflation over the past few years has made more people take a look at increases in costs. However, as this inflation cools, it can become easy to forget that prices will rise again in the future.
Hylland said, “If your retirement investments are not allocated to keep up with inflation, you will find that, over time, your $1 million gets spent very quickly as costs increase.”
“It is common for many retirees to invest more conservatively as they enter retirement,” he added. “While that may feel good in the short term to avoid some volatility, if your accounts do not keep up with inflation, there can be some serious long-term consequences.”
You Have Over 10 Years Left on Your Mortgage
Having a million dollars saved for retirement is a great start, but if you have a lot of life left on your mortgage, it may run out quicker than you think.
Dana Anspach, founder and CEO of Sensible Money, said, “Entering retirement with a mortgage isn’t the end of the world if, through regularly scheduled payments, it will be paid off within a few years. However, if the mortgage has ten-plus years remaining on the term, covering this cost can eat away at a smaller nest egg, causing you to use up too much of it too soon.”
She added, “If you have enough home equity, one option to consider is a reverse mortgage, which, for those who qualify, may be used to pay off your current mortgage, thus eliminating the payment.”
You Are Retiring Early
If you retire before age 65, you will need more money to cover costs throughout a longer retirement.
Anspach said, “Medicare begins at age 65, and while it doesn’t cover all healthcare costs, it covers a lot. Early retirees must carry the costs of all their healthcare needs prior to reaching age 65 and should expect to pay about $1,000 per month per person. Those who can strategically plan account withdrawals to keep their income low may qualify for healthcare tax credits, which can help subsidize this cost.”
Along with healthcare, you will need to plan for all your other expenses — from housing to food to fun — which will cost you even more money.
You Have an Expensive Lifestyle
Some retirees who are used to living a certain lifestyle struggle to adjust to a fixed income.
Anspach explained, “For those with expensive taste, a million-dollar nest egg may not be enough. While $1 million can support a modest retirement lifestyle, it won’t cover expensive travel, high-end restaurants, designer clothes or premium automobiles.”
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This article originally appeared on GOBankingRates.com: Are You a Millionaire? 6 Key Signs That You Cannot Retire Yet