Half a million dollars might sound like a lot of money, but when you consider your retirement could last 30 or more years, it might not go as far as you think. If you didn’t have any other income, that means you’d have about $20,000 for each year.
If you discover $500,000 isn’t enough for you to retire comfortably, you can earn extra money now — and in retirement — to help you live the lifestyle you want.
Do you dream of retiring early? Take this quiz to see if it's possible.
The 4% rule
Using the 4% rule can help you better plan your retirement expenses. Most financial experts advise you to withdraw only 4% of your total assets in your first year. You then need to reassess and account for inflation in the following years.
Following this rule should make your retirement savings last 30 years. If you have $500,000 in assets, this would mean living on $20,000 for your first year, plus any Social Security you receive.
How much you can spend
You’ll need to create a budget to determine how much you can spend each year. Calculate your necessities like your mortgage, utilities, and groceries. Once you’ve done that, you can determine what's left of your $20,000.
If you find necessities eat up too much of your budget, you can cut back on groceries or shop for cheaper car insurance.
Don’t forget to factor in other things like gas and home maintenance. See if there’s enough left for entertainment, travel, and other activities you’d like to pursue.
Your Social Security benefits
According to the Social Security Administration, the average monthly retirement benefit was $1,781.63 for February 2023. But not everyone receives the same amount.
Knowing your monthly benefit helps you better understand what retiring with $500,000 will look like for you. This amount is based on your pre-retirement earnings and can change over time with cost-of-living increases.
What you earn annually on investments
Consider how much you earn each year on your investments. This amount could give you extra money to live comfortably if you plan for your $500,000 to cover basic cost-of-living needs.
Some investments carry more risk than others. And what you earn now could change over time. It’s wise to rebalance your portfolio often to minimize your overall risk.
How soon you can retire
Retiring early gives you less time to save and take advantage of employer match 401(k) programs. But it also results in smaller Social Security payments and requires you to make your money last longer.
Making $500,000 last even five extra years can require extreme changes to your post-retirement budget. You might have to sacrifice certain expenses to cover that additional time.
On the other hand, retiring later gives you more time to save and results in spreading that $500,000 over a shorter period of time.
Where you retire
Where you decide to retire can drastically impact your cost of living. To stretch your dollar the furthest, consider states with lower housing, food, and utility costs as well as taxes.
But don’t neglect to take other important factors into account. Access to quality health care, proximity to loved ones, and quality of life are just as essential to a comfortable retirement.
Downsizing your home
You might not need as much space during retirement. Consider downsizing your home to save money every month on utility bills. You’ll likely also save on maintenance and repair costs over the course of your retirement.
A smaller lawn and house also means less work for you. You can spend more of your time doing things you enjoy and less time cleaning.
Supplementing your income
It’s much easier to comfortably retire with $500,000 when you know you still have a regular income.
Whether you created passive income streams before retirement, started a new business, or picked up a part-time job, that additional cash will allow you more wiggle room in your monthly budget.
Uncovered medical expenses
If you plan to retire early, you won’t have access to Medicare until age 65. Even after you’ve enrolled in Medicare, the insurance doesn’t cover all costs, such as dental, hearing aids, and some long-term care needs.
Medical bills could consume a large chunk of your retirement income, making it difficult to maintain a comfortable lifestyle for 30 years.
The cost of a Medigap or supplemental insurance policy to cover uncovered medical expenses should be part of your retirement budget.
Remember that today’s dollar likely won’t go as far when you’re living in retirement. Living on $500,000 10, 20, or 30 years from now may look a lot different than it does now. You can use an inflation calculator to see how prices have changed over the years.
This is another reason to make your money work for you rather than just saving it. Making good investments can help you combat the effects of inflation.
Supporting family members
If you’re single, $500,000 will last much longer than if you have a spouse or dependents to support. Consider whether you will help adult children financially and what you’d like to leave for them when you’re gone.
Going into retirement with as little debt as possible will help your $500,000 last longer. You should try not to have credit card debt when you decide to leave the workforce.
Taking out a new car or personal loan close to retirement may add debt to your retirement budget. If you still have a mortgage, you’ll also need to factor in your payments. You might also decide to pay off your mortgage if it makes sense for you.
A financial advisor can help you determine where to invest your money to help you retire with more and make what you have last longer.
Working with a professional can make all the difference if you’re serious about growing your nest egg and living a long and comfortable retirement.
You might not think you can retire early after considering how you’ll live on $500,000 in savings. But you can take steps now to grow that $500,000 into a larger nest egg.
Cutting unnecessary expenses, working with a financial advisor, and increasing your earnings can help you retire when you want rather than when you need to.
Once you’ve factored in your Social Security benefits and any assets or income, you can make better decisions about your retirement.
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