I'm 60 with $4 million. Can I have a luxury retirement?

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Question: I'm 60 with $4 Million — Can I Have a Luxury Retirement?

Answer: Some might think that having $4 million is enough for a luxury retirement, but with so much economic uncertainty, it makes sense to ask this question.

One of the trickiest elements of retirement planning is figuring out a savings target. It’s virtually impossible to come up with a precise estimate of what retirement will cost because there are too many unknowns, from inflation to longevity to what health care will cost.

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When it comes to setting a savings target, the best thing many of us can do is estimate a number and run with it.

There’s some data on how much money it might take to afford a comfortable retirement. Northwestern Mutual recently reported that $1.46 million was the magic number. There's also guidance that you can adjust for your personal situation. Fidelity, for example, recommends having 10 times your ending salary saved by age 67.

If you’re 60 and have $4 million saved for retirement, you might be wondering where you stand and what retirement might look like if you were to wrap up your career immediately.

The truth is that a $4 million nest egg gives you a lot of leeway. However, it’s important to envision the retirement you want in detail.

You can spend comfortably, but cautiously

Reaching age 60 with $4 million doesn’t mean you’re ready to retire. If you enjoy your job (or at least don’t mind it), there’s no reason you must.

At the same time, you’re probably in a place where you can concentrate less on funding your nest egg during your remaining time in the workforce and more on spending your earnings on things that bring you joy.

From there, you could decide to transition into retirement at age 62, which is when Social Security benefits become available (albeit at a reduced rate), or at 65, when Medicare eligibility generally begins.

That still raises the question of what sort of retirement lifestyle $4 million will buy. On a basic level, it probably means you can live pretty comfortably, says Matt Hylland, Financial Planner at Arnold and Mote Wealth Management.

"To give some sense of sustainable spending amounts that $4 million could produce, consider the most basic rule of thumb for retirement planning - the 4% rule," he says.

"The 4% rule would say annual withdrawals of $160,000 per year, or about $13,300 per month, are sustainable with a $4 million portfolio. This would be on top of what you receive from Social Security."

Hylland, however, thinks that in practice, the 4% rule is often conservative.

"If a retiree with $4 million has flexibility in their spending and can reduce withdrawals in the event of a significant stock market decline, withdrawals of 5% or 6% can generally be very safe. That would mean annual withdrawals of $200,000 to $240,000," he says.

From there, the options that income buys you depend on your goals and expenses. You could also try using the guardrails approach, which sets different withdrawal rates for each retirement phase, as many people want to spend more in early retirement when they're healthy.

If your home is paid off and your health care needs are modest, you might find that you have more than enough money to keep busy to your heart’s content, whether that means enjoying the theater once a week or dining out at local restaurants regularly.

There’s probably ample room for travel during retirement, too. You might not be jet-setting off to Europe every month with $4 million in savings. However, it may be feasible to take several modest trips or one or two luxury trips per year without going overboard.

That said, a $4 million nest egg isn’t the same as $14 million. You’ll need to monitor your spending and portfolio to ensure that you’re living within your means and that the level of spending you start with is sustainable.

Steven Conners, CEP, Founder and President at Conners Wealth Management, says that even if you have $4 million to your name, it's important to avoid spending recklessly.

"You ought to still have a retirement plan in place that has a spending limit," he insists.

However, Connors says, "This limit can include more expensive automobiles, travel, and beautiful homes. The idea is to not overspend."

Think about what you really want

Some people live frugally in retirement, not because they’re worried about running out of money, but because they’re content with a modest lifestyle. If you’re nearing retirement with $4 million, there’s no rule stating you have to spend all that money in your lifetime.

You might find it fulfilling to spend some savings on yourself, but to also use a portion of your nest egg to better the lives of others — the so-called "Die with Zero" rule. That could mean starting a 529 plan for your grandchildren or making regular donations to a charity you’ve long supported.

The nice thing about a $4 million nest egg is that you shouldn’t have to pinch pennies in retirement or worry about minor unplanned expenses that arise. Even major surprises — such as a new roof or transmission for your vehicle — shouldn’t be more than a source of irritation with that much money (assuming that they happen fairly infrequently).

That’s really your most important takeaway. You could use your $4 million to travel the globe or spend your days reading and gardening, and the result is the same.

As long as you manage your withdrawals carefully, you should be able to wade through retirement with the peace of mind that comes with knowing you have your expenses covered.

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.