Planning for retirement comes with a lot of factors to consider. How much money do you need to retire? What will your monthly expenses be? How long will your savings last? These are all important questions that need answers.
So let’s say you plan to have $500k in savings by the time you turn 60. You may be wondering: is this enough to retire on?
Well, it’s definitely possible to retire at 60 with $500k in savings, but it will largely depend on your other retirement strategy.
Read on to learn more about how you can make $500k last in retirement so that you have a comfortable lifestyle in your golden years.
Can I retire at 60 with $500k?
In short, yes, you can retire at 60 with $500k in savings. With a modest lifestyle and minimal living expenses, this could lead to at least 20 years of secure retirement income. If you have additional retirement income sources such as a pension or social security, this could last even longer.
Paying attention to your budget now will give you an idea of your potential retirement expenses. You’ll likely have fewer liabilities in your retirement because things such as student loan debt, a mortgage, and children’s expenses may be gone. However, you’ll still need to account for inflation and other potential costs such as healthcare.
If you’re unsure whether $500k is enough to cover your retirement, consider meeting with a financial advisor to get professional advice on your unique situation. They can help you create a retirement plan that will give you the best chance for success.
What affects whether or not you can retire at 60 with $500k?
Some factors that could affect how long your $500k lasts in retirement – and that you should definitely consider when calculating if you have enough money to retire – include the following.
The cost of goods and services typically goes up over time. This is due to inflation, which can reduce the purchasing power of your savings.
If inflation averages 3% per year, then after 10 years, your $500k would be worth approximately $680k in today’s dollars. This is why it’s important to have a retirement plan that accounts for inflation.
2. Investment returns
Another factor to consider is how your investment portfolio performs. If you have a mix of stocks and bonds, you can expect to see some ups and downs in the markets. However, over time, the stock market has shown to provide positive returns.
You’ll eventually want to adjust your investments to lower-risk options as you approach retirement. This will help protect your savings from market volatility.
It’s also important to consider taxes when planning for retirement. Depending on the type of accounts you have, you may be required to pay taxes on your withdrawals.
For example, if you have a traditional 401(k) or IRA, you’ll likely owe taxes on your withdrawals. However, if you have a Roth account, your withdrawals are typically tax-free.
4. Your withdrawal rate
Your withdrawal rate will play a major role in how long your $500k lasts.
If you plan to withdraw 4% each year, this would give you an annual income of $20,000. This means your savings would last for 25 years.
However, if you withdrew 6% annually, your $500k would only last for 20 years.
5. Your living expenses
If you owe money on a mortgage or other debts, this will also affect how long your $500k lasts. The less money you need to cover your living expenses, the longer your savings will last.
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6. Your assets
Perhaps you have other assets such as home equity that could help supplement your retirement income. If you have paid-off your mortgage, this could be a source of funds in retirement. You could rent it, sell it, or even take out a reverse mortgage.
You could even turn certain liabilities into assets. For example, if you have a car but no longer commute to work, you could rent it out so it helps to extend your retirement income.
7. Any medical conditions
It’s also important to consider your healthcare costs in retirement. These can be significant, especially if you have a chronic health condition.
Taking care of your health now can help you reduce your healthcare costs in retirement. However, you’ll still want to have a plan in place to cover these costs.
Can you retire on 500k and Social Security?
Yes, when you combine your 500k in savings with social security payouts, you can retire comfortably and securely. The later you claim your social security benefits, the more money you will receive each month. So you’ll want to weigh the benefits of claiming earlier vs. later when making your decision.
Social security is a government program that provides income for retirees. You can begin to get your social security benefits as soon as you turn 62 years old. You can also wait and delay your benefits until you’re 70.
So, if you’re considering retiring at 60 with $500k, you won’t be able to access social security right away. You’ll have to wait at least two years and may even decide to wait longer to maximize your benefits.
FYI: A pension is another potential source of income in retirement. If you have a pension plan through your employer, this can provide additional income in retirement or even help you to hold off on your social security payments.
What is the average 401K balance for a 60-year-old?
The average 401k balance for a 65-year-old in the United States, is $232,379. The median 401k balance is $84,714. This means that it’s common for people over 60 to retire with much less than 500k in savings or in the market. However, these individuals may need other sources of income to supplement their retirement.
These numbers are based on information provided by Vanguard, so your own numbers could certainly differ based on your circumstances.
In any case, taking advantage of any 401k employer matches now can help to speed up the process of saving for retirement. Employer matches typically occur when an employer contributes a certain percentage of an employee’s salary to their 401k account.
For example, if you contribute 5% of your salary to your 401k and your employer matches this contribution, you are effectively saving 10% of your salary each year.
Some additional ways to make sure you have more saved in your 401k by your 60s are to start saving early, invest in a diversified mix of assets, and contribute as much as you can afford each year.
How much money do you need to retire at 60?
Those who live minimally can retire on as little as $100,000, while those who want to maintain a more luxurious lifestyle may need as much as $1 million or more. Eliminating debt, sharing housing, and taking on part-time work could all help reduce the amount of money you need to retire.
To figure out how much you need to retire, start by estimating your annual expenses. Then, subtract any sources of income you will have in retirement, such as social security benefits or a pension. You’ll also want to add income from any assets you plan to sell, such as your home.
The remaining amount is what you’ll need to cover with savings or other sources of income for each year of your retirement. For example, if you estimate that you’ll need $50,000 per year to cover your expenses and you expect to receive $20,000 per year from social security, you’ll need to cover the remaining $30,000 with savings or other income.
You can also calculate your retirement by using a retirement income calculator. These resources can help you to more accurately estimate how much money you’ll need to retire if you grow it in an interest-bearing account.
How to retire at 60 with $500k
Let’s take a look at each step necessary for making sure you have enough money saved to retire at 60 with $500k.
1. Invest early and often
Start saving for retirement as soon as you can. The sooner you start, the more time your money has to grow. Even if you can only afford to save a small amount each month, it will add up over time.
This is because compounding interest does most of the work when it comes to growing your savings. Compounding interest is when you earn interest on your original investment plus any interest that has already been earned.
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2. Invest in a diversified mix of assets
When you’re investing, it’s important to spread your money around to different types of investments, such as stocks, bonds, and cash. This is known as diversification and can help to reduce the risk of losing money if one investment fails.
Many people set and forget their market diversification process by investing in EFTs or index funds. These are both great ways to ensure that you’re diversified without having to put in a lot of effort.
3. Contribute as much as you can afford each year
Save as much money as you can each year to make sure you have enough for retirement. If your employer offers a 401k match, be sure to contribute enough to take advantage of the match.
Earnings fluctuate, life changes, and plans change. So if you have more money to contribute to your retirement savings one month, go ahead and put some extra in. You’ll be happy you did when you’re ready to retire.
4. Use a retirement income calculator
Saving as much as you can is a good strategy, but to hit $500k, you’ll need to get specific about what you need to save each month. This way, you can make specific adjustments to your career and budget that will help you hit your target.
A retirement income calculator can give you a good idea of how much money you need to save each month to retire with $500k. This tool takes into account factors such as your current age, expected retirement age, salary, and more.
5. Adjust your spending
One great way to boost your investments and reach your $500k goal is to reduce your savings. You can do this with expenses that have an immediate expense, such as eating out less.
Other expenses will decrease over time, such as the cost of raising children or paying off student loan debt. Take whatever extra money you have each month and put it into savings.
6. Start a side hustle
In addition to saving as much as you can, consider ways to bring in additional income. A side hustle can help to boost your retirement savings and give you extra money to work with.
Some options that are accessible for people of all ages and abilities include dog walking, starting a blog, or becoming a driver for a rideshare company.
Add these earnings to your retirement savings each month to help you reach your goal even faster.
As you near your retirement date, you may want to consider downsizing your home. This will not only free up extra money each month, but it can also help to reduce the amount of money you need to live on in retirement.
This is a great option if you’re an empty nester or no longer want to keep up with cleaning and maintaining a large home.
8. Delay your retirement
If you’re getting close to retirement and are still short on savings, you may want to consider delaying your retirement date. This will give you more time to save and can help reduce the amount of money you need to live on in retirement.
Even one year of work over the age of 60 can provide you with thousands or tens of thousands of dollars of additional savings.
9. Decide on the right withdrawal rate
When you retire, you’ll need to decide how much money to withdraw from your savings each year. Depending on how long you expect to live in retirement, you may need to adjust your withdrawal rate.
In general, you’ll want to take out an amount that is under the accruing interest rate of your investments. This will help you make sure your money lasts as long as you need it to.
3% is a good starting point for most people, but you may want to adjust this figure up or down depending on your individual circumstances.
10. Delay social security benefits
Even after you’ve retired, you may want to hold off on your social security benefits if you can afford to. This is because the later you wait to start collecting social security, the higher your monthly payments will be.
So, if you’re able to support yourself without social security for a few extra years, it can pay off in the long run.
How much retirement income does $500,000 generate?
The amount of retirement income that $500k will generate depends on how much money the retiree needs to live and their tax rate. For example, if you need $40,000 a year to live and have a 20% tax rate, you need to withdraw $50,000 each year. In this case, the $500k would last 10 years.
If the money is still growing in accounts such as 401ks and IRAs, the $500k could last even longer. If your retirement is invested in mutual funds such as the S&P 500, for example, you could expect an average return of up to 8%.
FYI: This means your $500k will increase by $40,000 per year. Excluding taxes and other charges on that amount, as well as the fact that some years will perform better or worse than others, this theoretically means that, if you need $40,000 a year to live, your $500,000 will generate all the retirement income you need indefinitely.
How long will $500,000 last in retirement?
Your 500k will last for a range of time in retirement depending on your expenses and financial management. Specifically, it could be spent as quickly as 5 years or last as long as 35 with good planning and keeping your money in the proper accounts.
The most important step to take is to make sure you have a plan and understand exactly how much money you need to live each year in retirement. Once you know this number, you can start saving and investing your money so that it lasts as long as you need it to.
How to make $500k last in retirement
The best way to make sure that your $500k lasts as long as you need it to is by coming up with a clear financial plan and sticking to it both while you’re investing and in your retirement. Consistency and being mindful of your spending are key to making your money last.
Here are some additional tips that can help stretch your retirement money as far as possible:
1. Work with a financial advisor
It can be hard to stay up to date on all of the different retirement planning strategies and options out there. A financial advisor can help make sure you’re on the right track and offer guidance on how to make your money last.
2. Be mindful of your spending
In retirement, it’s easy to let your spending get out of control. Be mindful of what you’re buying and try to stick to a budget. You may want to take trips and enjoy your time off, but it’s important to find budget options for this or use other resources such as miles and points that can be redeemed for flights and hotels.
You’ll also want to look up free activities when going out and take advantage of senior discounts. These benefits can add up over time and save you a lot of money.
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3. Consider downsizing your home
One way to free up some extra cash in retirement is to consider selling your home and downsizing. This can give you a nice chunk of change that can be used to supplement your income or help pay for other expenses.
4. Think about relocating
If you’re not attached to the place where you live and it has a high cost of living, why not consider relocating? This can help you save money on things like housing, food, and transportation.
5. Create a retirement income stream
Try to create a retirement income stream that is separate from your savings account. This could involve investing in things such as rental properties or setting up a business.
Even if you don’t want to work in a traditional way, there are plenty of passive or semi-passive income ideas that can help supplement your retirement savings.
6. Save in the right accounts
There are a lot of different types of accounts that you can save for retirement in. It’s important to choose the right ones so that you’re not paying more taxes than you need to. Working with an advisor can help you figure out which accounts are best for you.
About the author
Anna is the founder of LogicalDollar and a personal finance expert, having been seen in Forbes, HuffPost, Reader’s Digest, MSN Money, Yahoo! Finance, CreditCards.com and many more. She’s committed to helping others get on the path to financial freedom using the experience gained from turning $60,000 in debt into a thriving investment portfolio. Find out more.