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Many Americans struggle to build retirement savings. So if you’re approaching the end of your career with $5 million in savings, you’re way ahead of the game.

As of 2022, the median retirement account balance among Americans aged 65 to 74 was $609,000, according to the Federal Reserve. A $5 million nest egg gives you more than eight times that amount. And it could also give you a pretty sweet annual income once you’re ready to start taking withdrawals.

But it’s important to manage a $5 million retirement account wisely, the same way it’s important to be careful with a $609,000 IRA or 401(k) balance. And that means following a withdrawal strategy rather than pulling money out of your account at random.

A good rule of thumb

Even if you start off retirement with a huge sum of money, it’s technically possible to run out of savings in your lifetime. That’s why it’s important to develop a strategy for tapping your nest egg.

A good rule of thumb that financial experts have long stood by is the 4% rule. It has you removing 4% of your IRA or 401(k) balance your first year of retirement, and then adjusting future withdrawals as needed for inflation.

Based on this guidance, with a $5 million nest egg, you’re looking at $200,000 a year in retirement income, not accounting for inflation-related adjustments. That’s a pretty amazing income to live on, considering that you should expect some benefits from Social Security on top of it.

Of course, if you want to use a different withdrawal rate, that’s your choice. Most financial experts will agree that going above 5% is a bit aggressive. So keep that in mind if you’re not certain you want to limit yourself to 4% of your savings each year.

A good bet, though, is to work with a financial advisor. A professional can assess your total income picture, expenses, and goals, and use that information to help guide you on the right withdrawal rate.

How to retire with millions yourself

You might assume that it’s only wealthy folks who get to retire with $5 million. But if you start saving early enough and use the right strategy to grow your money, a large nest egg may be in reach. You may not get to $5 million. But half of that may be surprisingly doable.

Start by finding the right home for your savings. If your employer offers a 401(k), you can sign up there. Otherwise, check out this list of the best IRAs for retirement and open one as soon as possible.

Next, aim to contribute as much on a monthly basis as possible. You can start small as needed and increase your contributions over time. A good bet, in fact, is to save your raise each year on top of the amount you saved the year before.

Finally, invest your retirement savings in the stock market so your money is able to grow. Over the past 50 years, the S&P 500’s average annual return has been 10%. That accounts for years when stock values soared and years when they declined.

If you invest $500 a month over a 40-year period at a 10% return, you’re looking at retiring with over $2.6 million. Now if you apply the 4% rule to that balance, you’re looking at a little more than $100,000 a year during retirement. But that’s hardly a small amount of money, especially when combined with Social Security.

The longer you wait to start building your nest egg, though, the less money you might end up with. So if you like the idea of having a six-figure annual income in retirement, start funding your long-term savings now, and invest for maximum growth right from the start.

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