As millions of baby boomers approach retirement with Generation X-ers not far behind the question of “Can you retire with $500,000?” repeatedly pops up among our readers. Yet, it’s not only those 60-year-olds thinking about retirement, but also, we find middle-aged folks asking if retiring at 55 with 500k is reasonable.
This article will delve into these questions:
- Can you retire with $500,000?
- How much do I need to retire at 60?
- How long will $500,000 last in retirement?
- How to retire forever on a fixed chunk of money?
- When should you retire?
As if it’s not enough for those older adults wondering, “Can I retire at 60 with 500k?” many folks in their 30’s and 40’s are now striving for early retirement and financial freedom. This new generation of young and middle aged adults seeking early retirement have even formed their own community, FIRE – Financial Independence Retire Early.
So, if you’re interested in how to retire forever on a fixed chunk of money, or ways to retire on 500k, you’re in the right place! In fact, you just might find out that it’s possible to retire at 45 with $500,000.
Can you Retire on $500,000?
Like any financial question, “Can I retire on 500k?” depends upon many factors:
- What retirement means to you
- How much money you need each year
- Your expected lifestyle in retirement
- Your geographic location
- Your current investments
- Other sources of income
- Whether you want to work part-time in retirement or not
The simplest response to “Can you retire on 500k?”, is to figure out two things:
- What will your retirement lifestyle will cost?
- How much income might a $500,000 investment portfolio generate. In other words, if you invest $500,000 will the returns from that portfolio support your lifestyle?
How much money do you need to live on?
To start our analysis, we’ll make some assumptions. You can adjust them, to fit your personal situation. Later in the article, you’ll learn ways to tweak your retirement cost of living.
Let’s assume that you’ll need $49,000 per household per year to live on, the bureau of labor statistics average for retirees.
This amount may be higher or lower depending upon where you live and your lifestyle as well as your projected health care expenses.
To personalize this analysis, take a few minutes to map out how much you expect to spend in retirement. Consider spending for basic living costs and extras such as travel and gifts. Assess how your post retirement spending will change.
Think about whether your vision of retirement includes any money making activities, side hustles or part time jobs.
Once you have your estimated budget, you can begin to determine whether it’s possible for you to retire at age 60 with $500,000.
How to Retire on 500k with a Variable Withdrawal Rate to Maintain a Steady Income Level
Instead of adhering to a conventional withdrawal rate, like the 4% rule, our initial analysis uses your expected budget in retirement to answer the question, “Can I retire at 60 with 500k?”
As with all future planning, especially how to retire forever with a fixed chunk of money, you’ll need to make some assumptions.
Retire on $500K Investment Assumptions:
Invest in a diversified mix of 60% stock investments and 40% bond funds,
Use their historical returns along with adjustments incorporating the current economic scenario.
Earn an expected average annual return of 6.4%.
Conservatively, we project 8% returns on the stock funds and 4% returns on the bond investments. Be cautious of aggressive return projections.
Of course, you might assume a different asset allocation and input other investment returns, depending upon your personal situation and assessment of future returns. But we recommend conservative assumptions when analyzing whether you can retire on 500k.
How to Retire at 60 With 500k – Assumptions:
- Your current age is 60 years old.
- Life expectation is 90 years old.
- Your 60% stock 40% bond portfolio will earn roughly 6.4% annually
- Your annual living expenses are $49,000
- Inflation expectation 1.5%
- Claim Social Security at age 62
We used a retirement calculator to come up with the following data:
Retirement Income Projections for a 60 Year Old With $500,00
With the assumptions above, your $500,000 account will be depleted by age 85. After that time, your income will consist solely of Social Security.
Here’s how the numbers work out:
But, don’t despair, we can still turn the question of “Can I Retire at 60 with 500K?” into a yes, with just a few minor adjustments!
First consider the assumptions.
Your Social Security Payments might be higher than the assumtions. Additionally, you might have a working spouse or a side hustle that generates cash flow. Your personal situation will impact the response to whether you can retire at 60 with $500k.
Let’s take a look at how to retire forever on a on a fixed chunk of money. It’s not easy, but it is do-able.
How to Retire on $500K?
Let’s tweak our assumptions a bit and figure out how to retire with $500k at age 60. After all, supplement your income or adjust your lifestyle and the numbers can work in your favor.
1. Wait to claim Social Security
By waiting to claim Social Security, you increase your benefits by approximately 8% per year. So, the longer you can wait to claim your benefits, the less money you’ll need to fund your retirement.
That means you’ll need to slash expenses and earn a bit during your first years of retirement, in order to supplement the lack of Social Security during your first five years of retirement.
If you’re really lucky, you might have a working partner to supplement the retirement bill until Social Security kicks in.
2. Slash your living expenses for the first few years in retirement.
Cutting expenses is one of the easiest ways to make your retirement dollars go further.
There are countless ways to slash living expenses in retirement. You might downsize your home and your vehicle. Reduce discretionary expenses such as expensive travel and dining out. Avoid supporting adult children, who should be on their own.
The Bureau of Labor Statistics found that older American households spent an average of $45,700 per family. So, if we’re considering whether a single adult can retire at 60 with $500K and not a couple, it shouldn’t be too difficult to cut back on retirement expenses.
If you cut expenses by $4,000 per year or $11 per day, the numbers work to retire at age 60 with $500,000.
“If you choose to live on $45,000 per year, you could claim Social Security at age 62 and fully fund your retirement until age 90.”
3. To Retire with $500k, consider moving to a lower cost of living area.
One of the best ways to slash retirement expenses is to move to a lower cost of living area. Taxes, housing and food costs vary substantially across the country, and the globe!
Although I currently live in the San Francisco bay area, the most expensive region in the country, I’ve lived in Indianapolis, Central Pennsylvania, and Southern Ohio, all significantly more affordable locations. Actually, living in lower cost of living regions gave me and my family the opportunity to aggressively grow our investments and ultimately be able to live in California.
By slashing housing, food and tax expenses, you can cut out tens of thousands of dollars from your annual budget.
According to a recent Wallet Hub study, the lowest cost of living regions for retirement in the US include:
- St. Petersburg, Florida (tie)
- San Antonio, Texas
- Knoxville, Tennessee
- Birmingham, Alabama
- Tallahassee, Florida
- Mobile, Alabama
- Jacksonville, Florida
You might be surprised that you can live near the beach on a budget as well. The HGTV show, Beachfront Bargain Hunt follows families across the country buying affordable homes on the water.
For the adventurous, expatriate communities across the globe facilitate retirement in beautiful international locations, for a fraction of the cost of living in the US.
4. Find a Retirement Side Hustle
“Among 65- to 74-year-olds, labor force participation is predicted to hit 32 percent by 2022, up from 20 percent in 2002.” ~ AARP.org
With lifespans growing, many older adults prefer not to retire in their 60’s in the traditional sense, only to face 30 years out of the workforce.
Even if you’re hesitant to work part-time during retirement, apart from the cash flow, there are significant benefits to working in retirement:
- Waiting to claim Social Security will likely provide greater lifetime benefits.
- You might receive health insurance.
- Working in retirement keeps your mind engaged and can promote greater health and well-being. In fact, a University of Oregon study that it might even add years to your life.
- A second career or side hustle could increase your life satisfaction.
Can I Retire Yet?
The answer to the question, “Can I retire yet?” is determined by several major factors:
- How much you spend in retirement.
- The size and composition of your investment portfolio.
- What returns you’ll receive from your investments.
- When you claim and the amount of Social Security benefits you’ll receive.
- How much additional income you can expect.
The tricky part is that most of these questions have flexible answers. So, it is your job to make your best estimates.
For a 60 year old, retiring with $500,000 is achievable. By investing wisely, spending sensibly, and choosing to live in a reasonably priced location $500,000 can support a lifestyle of spending roughly $45,000 per year.
Yet, there are many younger folks looking to retire early and wondering if retiring at 55 with $500k is possible.
As a bonus, let’s look at other retire-early scenarios and explore, “What is a reasonable amount of money to retire with?”
How to Retire Forever on a Fixed Chunk of Money – Bonus Section
To retire forever on a fixed chunk of money, you’ll need to manage your saving, investing, lifestyle, and consider a side hustle.
Mr. Money Mustache did a nice analysis for this question with several scenarios. All his analyses included spending $40,000 per year in retirement and having either; $800,000, $1 million or $1.3 million in investments.
That’s a lot of money, for many folks to accrue before they hit age 60. Yet, it’s possible to build up a hefty portfolio relatively quickly with aggressive saving, investing, and simple living.
To retire forever on a fixed chunk of money, you’ll need to build up a 6 to 7 figure investment portfolio or live in another country.
You can build up a $1,000,000 investment portfolio in 25 years by investing $14,776 per year in an investment account earning 7% per year. Avoid putting all of the money into a tax deferred account like a 40(k) and IRA because you can’t withdraw that money penalty free until age 59 ½. So, it’s wise to invest outside the retirement account as well in a brokerage account at one of the discount firms like Schwab, TD Ameritrade, E*TRADE, or Vanguard.
To grow your investments to $800,000 in 25 years, you’ll need to invest roughly $11,820 per year.
While saving $14,776 or $11,820 per year seems like a lot of money, realize that any moneys diverted into a 401(k) reduces your taxable income.
To build up your financial portfolio for the future, another option is to grow your income, so that you can save and invest even more aggressively.
The other factor to retiring forever on a fixed chunk of money is living simply. You need a commitment to cut expenses and live on a budget. Or, earn a gigantic income.
Related: How to Earn Money Online for Seniors
Many early retirees prefer to do “work” that they enjoy and supplement their savings. If you fall into that camp, then it’s much easier to “retire early” if you’re also bringing in some income.
Ultimately, building up a chunk of money to fund your life is a numbers game. Live affordably, save and invest aggressively to retire forever on a fixed chunk of money.
The 4% Rule – How Viable is it?
Put forth by William Bengen in 1994 after studying 50 years of historical investment market returns the 4% rule states that in most cases, if you withdraw 4% of the value of your investment portfolio each year, your money should last for approximately 30 years.
Well, living for 30 years after retirement is great if you’re 60, but if you’re 50, and you live until age 90, then the last 10 years without any savings, won’t be too great.
So, if we tweak the rule a bit and withdraw 3% of your investments let’s see how much money you’d need to reach $40,000 per year.
If you withdraw 3% from a $1.35 million portfolio, you’ll have an annual cash flow of $40,500 per year and it’s unlikely that the portfolio would ever be depleted.
But wait, here are some ways to reduce the required retirement lump sum or build up cash more quickly:
Invest more aggressively and project a higher rate of return. If you allocated a greater percent of your investments to stock market investments, you have the possibility of earning higher returns. With an 8.5% annual average return, you can build up a $1,000,000 portfolio in 20 years by investing $19,000 per year.
Earn just $20,000 per year, and you’ll need far less to retire early. So, working part-time, especially in a side hustle that you enjoy, can make early retirement much easier.
In fact, most FIRE folks aren’t looking to retire early and do nothing. Many of them want to leave their current jobs to work in a way that appeals to them.
When Should You Retire?
As the examples and discussion illustrate, there are an abundance of factors that go into the questions of whether you can retire with $500,000 in savings or how much you need to retire. Not the least of which is, “What does retirement mean to you?”
Actually, if you hate your job, maybe all you need is a job you like more. Or, if you’re nearing age 50, feel like you’ve put in your hours and have built up a decent portfolio, then retiring at 55 with $500k is definitely possible.
As with any life choice, there are always tradeoffs, and very few people and have it all. If retirement means living solely off of your investments and Social Security benefits then you’ll need a much larger portfolio than if you’re seeking a simple life on the coast of Texas while you work part-time at the Home Depot. Or maybe a low-fee Annuity would help stabilize your retirement income.
Whatever your future holds, there are many online calculators to help you map out your retirement future.
Recommended Retirement Calculators:
Personal Capital Retirement Planner – Comprehensive Free Online Retirement Calculator. After a quick sign up, just navigate to the Retirement-planner page.
OnTrajectory Retirement Calculator – Free Online Retirement Caclulator with Paid Upgrade
Vanguard Retirement Calculator – Free Online Retirement Caclulator
CalcXML – Free Online Retirement Caclulator
MaxFi Planner – A fee-based retirement and financial planning tool.
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