Is $3 Million Enough to Retire at 50?

Is $3 million enough to retire comfortably? The answer depends on several factors including your annual expenses, expected investment returns, supplemental income sources and lifespan. Assuming a 4% withdrawal rate, $3 million could provide $120,000 per year before taxes, but healthcare costs, market fluctuations and inflation can impact long-term sustainability. If you plan to retire at 50, careful planning is essential to ensure your savings last.

A financial advisor can help you create a financial plan for your retirement goals and needs.

How Much Income Can $3 Million Make Yearly?

The good news is that $3 million can generate a large amount on its own yearly. Let’s say your $3 million in investments produces a modest 4% return. That 4% is $120,000, as discussed above. If you live off of $80,000 and reinvest the $40,000, your $3,040,000 investment will grow to $3,161,600 with another 4% growth year.

If you can continue in this way, your investment will outpace the average inflation rate of 3-4%, and you’ll be able to maintain your nest egg for many years to come. Of course, some years will come with higher or lower returns, as well as higher and lower rates of inflation. However, $3 million is a sizable buffer that can carry you into your twilight years if you can keep your expenses lower.

How to Calculate How Much Money You’ll Need to Retire

To calculate how much money you’ll need to retire, start by estimating your annual expenses in retirement, including housing, healthcare, food, travel and discretionary spending. A common rule of thumb is the 4% rule, which suggests withdrawing 4% of your savings annually to make your funds last at least 30 years. To determine your target nest egg, multiply your estimated yearly expenses by 25.

For example, if you expect to spend $100,000 per year, you would need $2.5 million saved ($100,000 × 25). Additionally, consider factors like inflation, Social Security benefits, pension income and investment returns, as these can impact how long your savings last. For early retirees, a more conservative withdrawal rate or alternative income sources may be necessary to avoid outliving savings.

How to Create Income Streams $3 Million

SmartAsset: Is $3 million enough to retire at 50?

There are many ways you can invest your $3 million to make sure it generates money for you to live off of in retirement. Let’s look at a few popular ways.

1. Invest in Real Estate

Putting your money in real estate is a great way to generate extra income. Whether it’s investing in real estate investment trusts (REITs) or buying investment property, holding real estate investments can be a major boon to your portfolio. REITs are well-known for delivering high returns. A physical investment property can give you a regular income in the form of rent payments, and the asset can grow in value over time.

2. Invest in High-Dividend Stocks

Investing in high-dividend stocks can provide a reliable income stream for retirement by generating regular cash payouts without requiring you to sell investments. Dividend-paying companies distribute a portion of their profits to shareholders, often every quarter, offering retirees a steady source of passive income. Many established companies, such as those in the utility, consumer goods and healthcare sectors, have a history of stable or growing dividends, making them attractive for long-term investors.

3. Invest in Annuities

Annuities are low-risk investments you make with an insurance company. These investments deliver a guaranteed rate of return on your investment. That means they’ll generate a reliable income for you. Their low risk makes them a great addition to your investment portfolio, especially if you’re also investing in riskier areas (like real estate or stocks).

4. Make Supplemental Retirement Income

When you retire, your income goes from coming from one main source to multiple sources. It’s good to explore having supplemental retirement income. Whether that’s through freelancing, consulting or working a part-time job, having a little extra money will help your retirement savings go further. Plus, it will keep you busy and engaged with more people.

Working with a financial advisor can help you understand which types of investments are a good fit in helping you reach your long-term goals.

Make Sure to Keep Tax Planning in Mind

With all of the investments you could be participating in, on top of your retirement, you can’t go without tax planning. You will be paying taxes on your investment income. So if you’re looking to sell a stock in the future, for example, capital gains taxes will be at your door if you make money from that sale.

Not to mention Social Security and retirement accounts like a 401(k) or individual retirement accounts (IRA) are income streams where you will pay taxes as well. Knowing what type of taxes you will pay in retirement will go a long way in how much you can save.

Consider Estate Planning

With $3 million at age 50, you have a good portion of your money at the young stage of your life. So it can be easy to use a good chunk of the money on current activities such as vacation with your family for example. However, planning with an estate plan will do wonders for not only yourself but also for your family.

Create beneficiaries within your retirement accounts like a 401(k) and individual retirement accounts (IRAs) and make sure it’s updated frequently in case of a life-changing event. You can also put some of your assets aside like your home and/or vacation home if you have one to pass down to your family so that they don’t have to take out a new mortgage when you already paid yours off.

Monitor Your Health Status

Healthcare is a priority for everyone, no matter what their tax bracket is. Not to mention healthcare expenses will increase as you get older. Making sure that you’re having checkups with your doctor, eating healthy, exercising frequently and not engaging in dangerous activities to name a few are game plans you can keep in mind during retirement.

And research what type of healthcare plan you may need going forward depending on if you have a chronic illness or not. And when you reach the age of 65, you’re eligible for Medicare so you won’t have to pay all your medical expenses out of pocket. Between age 50 and 65, you can use that time to create emergency savings specifically for your healthcare.

Bottom Line

Retiring at 50 is a great goal to have. If you have $3 million saved, you’ll likely be able to retire comfortably. You’ll need to factor in your living expenses, inflation and the expected rate of return on your investments. With the help of a financial advisor and some supplemental income, you should be able to stretch your retirement money into your final years. Talk to a financial advisor to help you find the right strategies that can help you do just that.

Early Retirement Tips

If you want to retire early, you should speak to a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Want to see how much your 401(k) will be worth when you retire? Use SmartAsset’s free 401(k) calculator.