Retiring with $1.2 Million? Here's How to Avoid Running Out of Savings

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For many people, retiring with $1.2 million is a pipe dream. But if you steadily fund an IRA or 401(k) throughout your career and invest your money wisely, it may become your reality.

Retiring with $1.2 million could lead to a very comfortable lifestyle. But it's important to make sure that money lasts as long as you need it to. Here's how to avoid depleting a $1.2 million savings balance through careful investing, withdrawals, and the right backup plans.

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1. Start with the right asset mix

If you want your $1.2 million to last in retirement, it's important to invest it in assets that can generate steady portfolio income and growth. At the same time, it's important to limit your exposure to stocks so your portfolio doesn't tank during market downturns.

You may want to aim for a fairly even split between stocks and bonds to get the best of both worlds -- strong returns and ongoing income. And within each asset class, make sure to diversify.

2. Land on a safe withdrawal rate

If you aren't careful in the course of tapping a $1.2 million portfolio, your money could run out. Figure out what a safe withdrawal rate looks like based on your asset mix and retirement timeline. For a fairly equal mix of stocks and bonds and a 20- to 30-year retirement, the 4% rule might work.

However, if you're going to invest more conservatively, you may need to stick to a 3% or 3.5% withdrawal rate. The same may apply if you retire in your 50s. And on the flipside, retiring later could give you the leeway to take larger withdrawals, percentage-wise.

3. Maintain a cash cushion for added protection

You never know when a prolonged stock market crash and slow recovery might upend your retirement plans. But with a solid cash cushion, you can gain protection.

Keeping one to three years' worth of planned expenses in cash allows you to leave your investments untouched if they've lost value. That cash cushion could also help you cover unplanned expenses, like home repairs, without having to worry about what the stock market is doing when those surprise costs pop up.

4. Build flexibility into your plan

Market downturns are hard to predict. So are periods of elevated inflation. If you're willing to be flexible in either scenario, it could help preserve the $1.2 million you've worked hard to build.

Instead of sticking to a rigid budget every year, allow outside conditions to help dictate how much you'll spend. That could mean reducing discretionary expenses during a market downturn and spending a bit more freely when markets are strong. It could also mean cutting back modestly when costs are on the rise.

5. Maximize Social Security to take pressure off your portfolio

You should not expect to cover all of your retirement expenses using Social Security. But those benefits may cover a large chunk of your recurring bills. And if you're able to boost them, you can take even more pressure off your savings.

If you were born in 1960 or later, you can collect your monthly Social Security benefits in full at age 67. But for each year you delay your claim past that point, until age 70, your benefits get a permanent 8% boost.

Larger checks should not only make it easier to avoid tapping your portfolio when the market is down, but also keep up with inflation, since Social Security benefits are eligible for an annual cost-of-living adjustment.

If you're retiring with $1.2 million, you may find that you have more than enough money to cover your needs without running out. The key, though, is to have a well-thought-out plan for how you'll invest, withdraw, and protect yourself through turbulent markets and periods of rampant inflation.

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