Here’s an example scenario: You’re 60 and plan to retire at 65 – by which point you can access Medicare health insurance if necessary. Assuming you’ll live to be 85 and won’t want to work after retiring, you can anticipate a need for 20 years of income. If you’re able to retire with $200,000 at 65, that will equate to $10,000 a year, or approximately $833 a month.
Could you live on that? On the one hand, that monthly figure could be reduced quickly with any early retirement plans. On the other, that $200k total could increase notably if appropriately invested, even in just the five years between 60 and 65.
How long will $200k last in retirement?
You can determine the length of time that $200k will last you in retirement by asking yourself the following questions:
How much do I plan to spend as a retiree?
How do I hope to live as a retiree?
Will I have any additional income, such as Social Security benefits?
Will I continue to invest in my later years, making my $200k work hard for me?
Use these questions as the basis from which to start calculating your potential monthly outgoings in that phase of your life. Don’t forget to factor in your past and present spending habits. You should also consider how those habits might change over time:
| Retirement age | Length of time covered by the $200k (assuming a life expectancy of 80 years) | Maximum annual and monthly distributions |
|---|---|---|
| 40 | 40 years | $5,000 annually, $417 monthly |
| 45 | 35 years | $5,714 annually, $476 monthly |
| 50 | 30 years | $6,667 annually, $556 monthly |
| 55 | 25 years | $8,000 annually, $667 monthly |
| 60 | 20 years | $10,000 annually, $833 monthly |
| 65 | 15 years | $13,333 annually, $1,111 monthly |
| 70 | Ten years | $20,000 annually, $1,667 monthly |
Consulting with an experienced financial advisor can provide tailored advice to assess your retirement needs based on your situation. Match with a financial advisor below.
How much tax will I pay if I retire with $200k?
The exact amount you’ll pay in retirement income taxes if you enter your next life phase with $200,000 is hard to pinpoint. It will usually be quite low, relatively speaking, but it will depend on:
Where you live – wherever you are in the country, you’ll have to pay federal income tax, though this is likely to be low on an amount like $200k spread over a decade. You’ll also have to cover state-level income tax in most states, though a handful don’t levy this.
Whether you have any other income to account for – if you are making money outside your $200,000 retirement savings amount, whether through investment income, gifted revenue or earned income, this will increase the tax you must pay.
How your retirement funds are held – some pension funds and retirement savings accounts are tax-advantaged. For example, if you have a Roth IRA, you won’t owe any tax when withdrawing the money, provided you’re over 59.5 years old. You’ll already have been taxed on this income as it entered the account.
Can you retire at 50 with $200k?
This figure is relatively low and could be further lowered by the potential impact of inflation and increasing living costs over time. As such, it shouldn’t be surprising that early retirement at 50 with $200,000 in savings won’t be a viable option for many people.
While this might not work for everyone, you could make it worth with you. It’s important to remember, alongside factors like inflation, that outgoings tend to be much lower during retirement than at other times in your life. Especially if:
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How much do Americans usually retire with?
As you might expect, the average retirement saving in the US changes with your age group. The older you are, theoretically, the longer you have to save. According to the Federal Reserve System’s 2019 Survey of Consumer Finances, which looked at the sub-group of Americans with retirement savings pots, the average balance is $254,720 for 45 to 54-year-olds, rising to $426,070 for 65 to 74-year-olds.
If these figures worry you, and you’re concerned about fitting in below the average based on your age, you should note that extremes at both ends of the spectrum affect the data. The median retirement savings balance is $100,000 for 45 to 54-year-olds and $164,000 for 65 to 74-year-olds.
Four ways to build up your savings
If you need to grow your pot of money earmarked for retirement, you might be wondering how to increase your savings effectively and efficiently:
Reduced spending – If you’re struggling to save as much as you ideally want to, sit down and take a holistic approach to your finances, especially your regular expenditures. Can anything be struck from the list or at least reduced?
Long-term savings accounts – If you’re willing to tie a portion of your savings up for the long term and haven’t already done so, look into opening an IRA or something similar to benefit from tax savings and favorable interest rates.
Wise investments – Becoming an investor and navigating complexities like the stock market can feel daunting. But, if you can accept some risk and seek some financial advice, a balanced investment portfolio could be just what you need to grow your $200k.
Expert guidance – If you feel you’re doing everything you can, why not share your financial situation with an experienced, qualified advisor? They’ll almost certainly be able to shine a new light and make savings-boosting suggestions you can implement.
The bottom line
Retiring with $200k is possible, if not ideal. If you’re closer to retirement age and hoping to leave the working world sooner rather than later, budget carefully and set realistic expectations. Only you can decide what’s within your power and right for your situation.
For financial planning support and advice on your monetary situation as a retiree, connect with an experienced financial advisor through Unbiased. Get started here.
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