Breaking down the reality of retirement for households with $4 million in savings

• A $4 million nest egg generates $160,000 annually using the 4% withdrawal rule.

• Healthcare, taxes and long-term care costs remain major variables that can have a significant impact on retirement spending.

• You may enjoy a nice retirement with $4 million saved, but continue to manage your money carefully.

• A recent study identified a single habit that doubled Americans’ retirement savings and moved retirement from dream to reality. Read more here.

Many people set a goal of being able to retire with $1 million. So if you’ve managed to save $4 million for retirement, you probably know you’re in a pretty good place.

This is especially true if you’re not debt-free and looking for a pretty generous monthly Social Security benefit, which may be the case if you’ve earned enough to build up a $4 million nest egg.

That doesn’t mean you shouldn’t be careful about your finances in retirement, though. While $4 million in savings clearly buys you a lot of options, it’s still important to prioritize and stretch that money as far as you can.

Even when you have plenty of money saved for retirement, it’s important to manage your withdrawals carefully. The 4% rule has long been popular among financial professionals and allows you to withdraw 4% in the first year of retirement and adjust future withdrawals for inflation.

The 4% rule is generally suitable for people who need to get about 30 years of income from their savings and have a fairly even mix of stocks and bonds in their portfolio. If you have $4 million saved and use this rule of thumb, you’re looking at an annual income of $160,000, not including adjustments for inflation.

However, that doesn’t mean you end up pocketing $160,000 a year. Remember, if your money is in an account that charges withdrawals, like a traditional IRA or 401(k), you get $160,000 minus whatever you owe the IRS.

Of course, if you have a larger portfolio of stocks, you may be able to comfortably withdraw 5% of your eggs each year. That would give you an annual income of $200,000.

A conservative portfolio, on the other hand, may limit you to a 3% withdrawal. That would give you an annual income of $120,000.

Your nest egg may not be your only retirement income stream, however. Social Security may pay you a nice sum on top of whatever you take out of the nest egg. And you may have other income streams, such as a rental property. You have to do the total calculation to see what income you are working with.

A $4 million nest egg can give you a very nice retirement. Exactly what that means is up to you.

Even if you can afford to stay in a larger home, you can choose to downsize so you can spend more money on leisure and travel and less on maintenance and utilities. Or, you can decide to own two modest homes — an apartment in the city you’ve lived in for decades and a small cottage by a lake or mountain.

A $4 million nest egg could also help pay for a lot of travel and entertainment. It may not be enough to take seven luxury international trips a year, but a few of these can be doable. Or, you may be able to make eight or nine domestic trips.

The lifestyle you get out of $4 million will depend on more than just your personal goals. There are certain expenses that could affect your income. These include:

• Health expenses

• Long-term care costs

• tax

It is best to make a plan to manage all these costs. Setting aside money in a health savings account is a great way to tackle medical bills in retirement. And buying long-term care insurance can save you huge costs if you end up needing assisted living or a nursing home stay.

It’s also a good idea to meet with a tax professional, especially if your $4 million in savings will be subject to taxable withdrawals. They can help you come up with other strategies to ideally minimize your IRS bill.

A $4 million nest egg should help you enjoy your retirement, no matter what specific ideas you have for it. But it’s still important to manage your savings wisely. This means planning your withdrawals carefully, investing strategically, and making sure you spend your money on things that are meaningful to you.

At the end of the day, $4 million in savings is a lot, but it’s not unlimited. It’s still important to make careful decisions, especially with big spending and shopping, so your money goes as far as you want it to go.

Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But the data shows that people with one habit have more double the savings of those who do not.

And no, it has nothing to do with increasing income, saving, clipping coupons, or even downsizing your lifestyle. It’s much simpler (and more powerful) than anything. Honestly, it’s shocking that more people don’t adopt this habit, considering how easy it is.