Personal Finance

I'm 52 and I just hit the $5 million mark in saving - how can I start to generate income to live off of?

Cash Flow
Canva | franckreporter from Getty Images Signature and 3283197d_273 from Getty Images

While scrolling through Reddit, I recently came across a post by Amazing_Bobcat8560, who had just hit $5 million in retirement savings. While this was a huge milestone, he is beginning to see that living off of his $5 million is more complicated than he first considered. How can you live off of it without risking depletion?

Having a structured financial plan is vital not only to generate income but also to keep you from running out of money prematurely. 

When you hit your financial independence number, it’s important to realize that how you generate your income is just as important as how much you withdraw each year. Our poster did mention the 4% rule, but how you implement that could mean all sorts of things – dividends, capital gains, or a mix of assets.

(That said, the 4% retirement rule may be dead.)

Let’s dive into my recommendations. These thoughts are just my opinion and shouldn’t be considered financial advice:

Retirement
24/7 Wall St.

Diversification

I would never recommend relying on one income stream. It’s wise to diversify. A balanced approach might look like using dividend-payings stocks while strategically selling equities to capture capital gains. 

Rental properties can be another source of passive income, but it’s important to remember that they carry their own risks. You should never try to live solely off of rental income in retirement. 

Avoid Panic Selling

A common mistake that can seriously hurt your wealth is panic selling when the market drops. Yes, you want to avoid losing your hard-earned savings, but it’s important to stick to your investment plan.

A cash buffer of a year or two of living expenses can help keep you from selling off investments at the wrong time. 

Consider Tax-Efficient Withdrawals

Taxes play a big role in how long your $5M lasts, too. Dividend income can be taxed at a higher rake than capital gains, for instance. You may benefit from a blend of both, but the tax question should drive some of your financial decisions. 

I recommend working with a tax professional to optimize your withdrawals for tax efficiency. 

Find a Qualified Financial Advisor (Sponsor)

Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.