Question: I’m retiring with $3.3 million at age 65 and want to avoid tapping my portfolio’s principal. Is this possible?
Answer: The average 65-year-old American had about $609,000 in retirement savings in 2022. If you’re retiring with $3.3 million at 65, you’re clearly well ahead of the game.
But no matter how much money you manage to bring into retirement, you may have a nagging fear of running out. And you’re not alone.
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Allianz reports that 64% of Americans are more worried about running out of money in retirement than actually dying. And while utilizing a smart withdrawal rate could lower your chances of depleting your nest egg in your lifetime, it doesn’t eliminate the risk.
But what if you were able to avoid touching your principal year after year in retirement and only live off of portfolio income? That effectively guarantees that your funds will never run out. You could also leave your family a hefty estate.
With $3.3 million saved, you may be in a pretty good position to stick to that strategy. But it’s important to understand the pitfalls and drawbacks you might encounter.
You may not have to touch your principal if you play your cards right
Someone with $609,000 saved for retirement (the average for your age) may have a hard time living solely on portfolio income. With $3.3 million, it’s more than doable, says John Dugas, Financial Planner at Prudential Advisors.
“Retiring at 65 with $3.3 million puts you in a very strong position, especially once Social Security is factored in,” Dugas explains. “Social Security alone can likely cover a meaningful portion of your annual expenses. That guaranteed income reduces the pressure on your portfolio.”
Plus, there’s the option to delay Social Security for even larger monthly payments.
From there, Dugas says, the goal is to structure your investments so they generate enough income to cover the rest of your lifestyle needs.
“A diversified mix that produces roughly 3–4% annually in dividends and interest can create $100,000 to $130,000 per year on a $3.3 million portfolio,” he explains. “When you add Social Security to that, you could get $130,000 to $170,000 or more in annual income without ever touching the principal.”
Now there are different ways to approach that income strategy. Some people, says Dugas, prefer a dividend-focused portfolio built around high-quality companies with long histories of raising their payouts, supported by REITs and investment-grade bonds.
Others, he says, may use a “bucket” structure that keeps a few years of spending in cash equivalents, sets aside a medium-term bond ladder, and allows the stock component to focus on growth and long-term income.
“Both approaches can work well, as long as the overall goal is consistent, reliable income,” Dugas says.
Dugas also explains that if you value predictability, converting some of your portfolio to an immediate annuity could make sense. If you were to put $1 million into an annuity, it would likely cover all or most of your essential living expenses, he says, leaving the remaining $2.3 million completely untouched.
You may be doing yourself a disservice by leaving your principal untapped
Although a $3.3 million nest egg gives you the option to avoid touching your principal in retirement, that doesn’t mean it’s an optimal solution, says Tyler Meyer, CFP and founder of RetireToAbundance.com.
“The idea is technically doable,” he says, “but it usually sends people down the wrong path.”
As Meyer explains, “When someone tries to avoid touching principal at all costs, they usually end up tilting the portfolio way too heavily toward income-producing assets. That sounds harmless, but it leaves you with too much in income-oriented investments and not nearly enough in long-term equities. Over time, you end up hamstringing yourself.”
Meyer feels that most people in the situation above would be better off maintaining a more traditional portfolio allocation and simply taking smaller withdrawals than what the portfolio can support.
“This is usually what leads to larger account balances later in life — not the ‘never touch principal’ mindset,” he explains.
Like Dugas, Meyer is a fan of the bucket strategy.
“When you follow this structure and your withdrawals stay below 5%, you have a very good chance of dying with more money than you started with,” he insists.
Be open to a different path
“Ultimately,” says Dugas, “with $3.3 million and Social Security starting at 65, the idea of never dipping into principal is realistic. The bigger question is whether preserving every dollar is actually the best way to use your resources.”
Using a small portion of your principal strategically — especially early on in retirement — could create more flexibility and enjoyment, he says.
Meyer agrees.
“The goal in retirement is not to freeze your account balance at a specific number,” he says. “The goal is to keep your lifestyle steady, give the portfolio room to grow, and not box yourself in with unnecessary constraints.”
