In simple terms, planning for retirement is a numbers game. Many experts recommendsaving at least $1 million for retirement, but that doesn’t take your individual goals, needs or spending habits into account. In turn, you may not need anywhere near $1 million to retire comfortably. For instance, if you have $500,000 in your nest egg, that could be plenty for your situation. In the end, the amount of funds you’ll need for retirement is completely personal to you. If you have specific questions about your retirement plans, a financial advisor can help.
What Does the Typical Retirement Cost?
According to the Bureau of Labor Statistics, in 2020 the average senior spent approximately $45,579. Assuming a 25-year retirement, the total cost would come to $1.139 million. So the $1 million mark doesn’t seem too far off.
A big chunk of that spending is related to healthcare. According to Fidelity Investments, the average 65-year-old couple can expect to spend around $300,000 for medical expenses over the rest of their life. That figure doesn’t include long-term care costs for retirees who require assisted living services or in-home healthcare. Insurance firm Genworth estimates the annual cost for nursing home care in a private room at about $108,408.
While Medicaid can cover long-term care expenses, Medicare does not. And qualifying for Medicaid may require retirees to spend down their retirement assets to become income-eligible. Social Security benefits can help supplement retirement savings but they will only go so far. For 2022, the maximum Social Security benefit is$4,194, but the average monthly benefit is $1,657.
Crunching the numbers, the idea of retiring on $500,000 may seem out of reach. But don’t count it out completely. You’ll just need to estimate accurately and manage your living expenses, both before and after retirement, to make it happen.
How to Retire on $500,000
Creating a mock-up retirement budget can reveal if your $500,000 target is realistic based on the type of lifestyle you plan to enjoy. The budget should account for basic living expenses including housing, food, utilities and transportation, as well as healthcare, hobbies and travel.If you have no idea where to begin, review your current spending patterns.
Try tracking your spending for at least six months and then ask yourself some key questions, such as:
- Is what you’re spending now likely similar to what you’ll spend in retirement?
- Are there any expenses you have now that may increase or decrease when you retire? Any that could disappear altogether?
- Are there expense categories you don’t have now that you might add to your budget when you retire?
These questions will provide insight into what it will cost to maintain your standard of living in retirement and help you decide a realistic draw down rate. Typically, experts recommend withdrawing 4% of your retirement assets – or less – each year (and adjust withdrawal amounts for inflation yearly) to ensure the money lasts. Assuming you have $500,000 in retirement, you could realistically withdraw $20,000 your first year of retirement. That amount would shrink incrementally each subsequent year, assuming zero portfolio growth.
If you take that $20,000 and add in the most recent average monthly Social Security benefit of $1,551, that brings your total annual income up to around $338,612. That’s assuming, however, that you wait until your full retirement age to claim Social Security benefits. Taking Social Security at age 62 would reduce your benefit amount, while progressivelydelaying benefits until age 70 would increase your payout.
Consider Where You Want and Can Afford to Retire
If your estimated retirement budget exceeds your expected retirement income, you may consider relocating to a smaller space or more affordable area to reduce expenses. When evaluating budget-friendly retirement spots, consider:
- Median housing costs
- Cost of renting vs. buying
- Median healthcare costs
- Access to healthcare
- Crime rate
- Recreation and amenities
- Location, weather and climate
Living in a small beach town, for instance, could save you money but it may create headaches if it’s in an area that’s prone to hurricanes. A city might have stellar access to healthcare but very little in the way of things to do or opportunities to connect with other retirees.
Alternately, you might look into retiring aboard a cruise ship or heading overseas.Malaysia, Panama, Georgia and Slovenia and consistently rank among the cheapest places to retire, while enabling you to soak up a new culture. But if you’re planning an overseas retirement, be sure to do your research. In addition to considering the cost of living, check any legal requirements for establishing residency in your chosen country. Weigh your options for healthcare and look into potential tax implications associated with claiming Social Security benefits or withdrawing money from investment accounts from afar.
Save for Retirement Early and Often
The most important thing you can do if aiming to retire on $500,000 is to be proactive about saving and investing. The sooner you start, the longer you have to take advantage of compound interest.
The first thing most people should do is open an employee retirement account, like a 401(k). At a minimum, contribute enough to get afull company match. Try to increase contributions up to the annual maximum allowed. For 2023, persons 50 years of age or older may contribute to their 401(k) a maximum $22,500.
If you’re able to max out your employer’s plan, supplement your retirement savings with a traditional or Roth IRA. Traditional IRAs allow for tax-deductible contributions, though you’ll owe taxes in retirement. On the flip side, a Roth IRA affords tax-free withdrawals in retirement since you’ll pay your taxes upfront.
A health savings account (HSA) can help you prepare for future healthcare expenses on a tax-advantaged basis. These accounts, associated with high deductible health plans, allow you to deduct contributions, up to the annual limit. These contributions grow tax-deferred and withdrawals are tax-free when used for qualified healthcare expenses. At age 65, you can begin taking funds from an HSA penalty-free for any reason. You’ll pay income tax on the distributions.
Take advantage of unexpected savings opportunities as well. If you get a raise, for example, divert those extra funds to your 401(k) or IRA. Do the same with tax refunds, bonuses and any other windfalls you receive. Those extra funds can add up over time, getting you closer to your $500,000 retirement savings goal. If you’re lucky, you might even surpass that amount.
If you’re 50 or older (55 for HSAs), remember that you can grow your retirement savingsfaster that you did in the past. In fact, the IRS permits anyone who’s at least 50 to make “catch-up contributions.” These enable you to go beyond your accounts’ typical annual contribution limits. Here’s how much extra you can deposit in 2023 for each type of account listed below:
- 401(k)s:$7,500 (bringing 401(k) contributions up to $30,000) if you’re 50 or older
- Traditional and Roth IRAs:$1,000 (bringing IRA contribution up to $7,500)
- HSAs:$1,000 a year through age 65 or until you’re enrolled in Medicare (bringing the total to $4,850)
Bottom Line
Retiring on $500,000 may be possible, but it probably won’t be easy. In addition to aggressive saving and strategic investing, you’ll need to be honest about your needs and thoughtful with your spending. It will be easier if you’re debt-free, healthy and don’t anticipate major expenses will arise during your golden years. Downsizing, moving somewhere with a low cost of living and committing to a modest lifestyle can also help. And remember that professional advice typically goes a long way when it comes to long-term planning.
Tips for Planning Your Retirement
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/DaLiu, ©iStock.com/DragonImages, ©iStock.com/Sitthiphong
Rebecca Lake, CEPF® Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
FAQs
The answer as to whether $500,000 is “enough” for you to retire at 60 might be completely different than someone else looking to do something similar. Generally speaking, you can retire at 60 with $500,000, but you may not like how much income you have or it may not be enough for your needs.
Is $500,000 enough money to retire? ›
With some planning, you can retire at 60 with $500k. Remember, however, that your lifestyle will significantly affect how long your savings will last. If you're content to live modestly and don't plan on significant life changes (like travel or starting a business), you can make your $500k last much longer.
What percentage of Americans have $500000 in retirement? ›
How much do people save for retirement? In 2019, about 50% of households reported any savings in retirement accounts. Twenty-one percent had saved more than $100,000, and 7% had more than $500,000.
Can you retire on $500 000 plus Social Security? ›
Yes, retiring at 55 with $500,000 is feasible. An annuity can offer a lifetime guaranteed income of $24,688 per year or an initial $21,000 that increases over time to offset inflation. At 62, Social Security Benefits augment this income. Both options continue payouts even if the annuity depletes.
Is $500,000 enough to retire at 70? ›
If you are retiring at 70 — when you get the most from Social Security — and have $500,000, you will be in a much better place than retiring at 60 with no Social Security or Medicare.” It's also possible to retire on $500,000 — or less — if you have access to a pension.
What is the average 401k balance for a 65 year old? ›
Average and median 401(k) balance by age
| Age | Average Account Balance | Median Account Balance |
|---|
| 35-44 | $97,020 | $36,117 |
| 45-54 | $179,200 | $61,530 |
| 55-64 | $256,244 | $89,716 |
| 65+ | $279,997 | $87,725 |
2 more rowsJan 20, 2023
According to the Schroders 2023 U.S. Retirement Survey, working Americans age 45 and older expect they will need about $1.1 million in savings in order to retire, but only 21% of people in that age group expect to have even $1 million. That's down slightly from the 24% in 2022 who said they expected to save that much.
How much money does the average person retire with? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
What is a good monthly retirement income? ›
According to data from the BLS, average incomes in 2021 after taxes were as follows for older households: 65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.
How much wealth does the average American retire with? ›
Experts advice to have 10x of your annual salary saved by retirement age at 65. The average person aged 65-74 has $1,217,700 in net worth. The median net worth is $266,400.
It may be possible to retire at 45 years of age, but it will depend on a variety of factors. If you have $500,000 in savings, according to the 4% rule, you will have access to roughly $20,000 per year for 30 years.
How much do I need to retire if my house is paid off? ›
One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye.
How much Social Security will I get if I make $100000.00 a year? ›
If your highest 35 years of indexed earnings averaged out to $100,000, your AIME would be roughly $8,333. If you add all three of these numbers together, you would arrive at a PIA of $2,893.11, which equates to about $34,717.32 of Social Security benefits per year at full retirement age.
How many people have 500k in savings? ›
Few Americans have saved more than $200,000: 4% have between $200,000 and $350,000, 4% more have $350,001 to $500,000 and a little more than 5% have more than $500,000.
Do most Americans have enough money to retire? ›
The percentage of non-retired Americans nearing retirement age (60-67 years old) who said they have enough money to retire was just 24%, a slight uptick from 22% in 2022.
Can I retire at 67 with 500k? ›
If you retire with $500k in assets, the 4% rule says that you should be able to withdraw $20,000 per year for a 30-year (or longer) retirement. So, if you retire at 60, the money should ideally last through age 90. If 4% sounds too low to you, remember that you'll take an income that increases with inflation.
How many Americans have no savings for retirement? ›
More than one quarter of Americans have no money saved for retirement, according to a new survey. Almost one in five people age 59 and older said they didn't have a retirement account, which compared to a quarter of Generation X respondents.
What is a good 401k amount to retire? ›
By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary. So, for example, if you're earning $75,000 per year, you should have $750,000 saved.
What is a good amount of money to retire with at 65? ›
Experts say investors usually need about 80% of their pre-retirement income in retirement. So if they earned $100,000 per year pre-retirement, they'd need $80,000 per year in retirement. Investors who live well below their means will need less than 80% of their pre-retirement income when they leave the workforce.
Do most people retire as millionaires? ›
The majority of retirees are not millionaires but it's possible to reach $1 million in savings if you're strategic in your approach. Getting an early start can be one of the best ways to reach your goal, as you'll have more time to benefit from compounding interest.
21,951,000 people in the U.S. have a net worth of $1 million or more. Among all states, New Jersey has the most millionaire households. Only 3% of American millionaires received an inheritance of $1 million or above. Real estate makes up about 40% of a typical millionaire's net worth.
How many Americans have a net worth of $1000000 or more? ›
There are 5.3 million millionaires and 770 billionaires living in the United States. Millionaires make up about 2% of the U.S. adult population. While an ultra-high net worth will be out of reach for most, you can amass $1 million by managing money well and investing regularly.
What is considered a lot of money to retire? ›
“Several experts on retirement have given various estimates about how much you need to save: close to $1 million, 80% to 90% of your yearly income before quitting work, and 12 times what you used to make annually.”
What is the average Social Security check? ›
According to the Social Security Administration (SSA), the average monthly retirement benefit for Security Security recipients is $1,781.63 as of February. Several factors can drag that average up or down, but you have the most control over the biggest variable of all — the age that you decide to cash in.
How much does the average retired person live on per month? ›
People ages 65 and older had an average income of $55,335 in 2021. Average annual expenses for people ages 65 and older totaled $52,141 in 2021. 48% of retirees surveyed reported spending less than $2,000 a month in 2022. 1 in 3 retirees reported spending between $2,000 and $3,999 per month.
Is $4,000 a month good in retirement? ›
First, let's look at some statistics to establish a baseline for what a solid retirement looks like: Average monthly retirement income in 2021 for retirees 65 and older was about $4,000 a month, or $48,000 a year; this is a slight decrease from 2020, when it was about $49,000.
Is $3000 a month good for retirement? ›
If you have a low living cost and can supplement your income with a part-time job or a generous pension, then retiring on $3,000 a month is certainly possible.
What do most retirees live on? ›
Without retirement savings, retirees are dependent on other income streams to cover their everyday expenses. The most common source of retirement income among retirees is Social Security, with 79% of those surveyed citing it as a source of income.
Does net worth include home? ›
However, one measure that many overlook is net worth. Your net worth represents how much wealth you have, measured by assets like a house, cars, 401(k), jewelry or cash in the bank, minus the debt obligations you have, or what you owe.
What percentage of Americans have $100000 for retirement? ›
14% of Americans Have $100,000 Saved for Retirement
Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.
Average 401(k) Balance by Age
Investment firm Vanguard analyzed data from about 5 million retirement accounts as part of its How America Saves report. According to the latest findings, the average 401(k) balance was $141,542 in 2021. That's an increase of about 10% from 2020.
How much monthly income will 500k generate? ›
If you invest $500k in an annuity when you are 60 and start earning immediately, you can expect to generate approximately $26,256 in annual income. This income is paid out monthly, so you can expect to receive approximately $2,188 a month from your annuity.
How much interest does $500 000 earn a month? ›
A $500,000 annuity would pay $29,519.92 per year in interest, or $2,395.83 per month if you prefer to set up systemetic withdrawals of interest. These payments assume a guaranteed interest rate of 5.75%.
How many people have $3,000,000 in savings? ›
1,821,745 Households in the United States Have Investment Portfolios Worth $3,000,000 or More.
What percentage of retirees still have a mortgage? ›
Across those 50 metros, an average of about 19% of homeowners who are 65 and older still have a mortgage. We also found that homes owned by people in this age group tend to be less valuable than those owned by the general population — and that their monthly housing costs tend to be lower.
Do most retirees have their homes paid off? ›
Many Retired People Don't Expect to Pay Off Mortgages
Traditionally, homeowners looked forward to paying off their mortgage before retirement and living out their golden years without the heavy burden of a monthly house payment. But that scenario is becoming less common, according to a recent survey.
Should a retired person pay off their mortgage? ›
Key Takeaways. Paying off a mortgage can be smart for retirees or those just about to retire if they're in a lower-income bracket, have a high-interest mortgage, or don't benefit from the mortgage interest tax deduction. It's generally not a good idea to withdraw from a retirement account to pay off a mortgage.
What is the Social Security 5 year rule? ›
The Social Security disability five-year rule allows people to skip a required waiting period for receiving disability benefits if they had previously received disability benefits, stopped collecting those benefits and then became unable to work again within five years.
What is the largest Social Security check amount? ›
What is the maximum Social Security benefit? In 2023, the maximum amount someone can receive in Social Security retirement benefits is $3,627 per month if they retire at 67. Someone who starts collecting benefits at age 62 can receive a maximum of $2,572 per month.
What is the highest pay out in Social Security? ›
In 2023, the average senior on Social Security collects $1,827 a month. But you may be eligible for a lot more money than that. In fact, some seniors this year are looking at a monthly benefit of $4,555, which is the maximum Social Security will pay. Here's how to score a benefit that high.
In 2019, about 50% of households reported any savings in retirement accounts. Twenty-one percent had saved more than $100,000, and 7% had more than $500,000. These percentages were only somewhat higher for older people.
Can 2 people retire with 500000? ›
Yes, you can! The average monthly Social Security Income in 2021 is $1,543 per person. In the tables below, we'll use an annuity with a lifetime income rider coupled with SSI to give you a better idea of the income you could receive from $500,000 in savings.
How much savings is considered wealthy? ›
Someone who has $1 million in liquid assets, for instance, is usually considered to be a high net worth (HNW) individual. You might need $5 million to $10 million to qualify as having a very high net worth while it may take $30 million or more to be considered ultra-high net worth.
What if I have no retirement savings? ›
Without savings, it will be difficult to maintain in retirement the same lifestyle that you had in your working years. You may need to make adjustments such as moving into a smaller home or apartment; forgoing extras such as cable television, an iPhone, or a gym membership; or driving a less expensive car.
What age does the average American retire? ›
Among those looking ahead to retirement, many expect to step away from work at age 65, according to the 2023 Retirement Confidence Survey. Although 65 is the anticipated median retirement age, workers report retiring at a median age of 62, the survey found.
Is $500,000 a big inheritance? ›
$500,000 is a big inheritance. It could have a significant impact on a person's financial situation, depending on how it is managed and utilized. As you can see here, there are many complex, moving parts involving several financial disciplines.
How much Social Security will I get if I make $200000 a year? ›
That works out to $3,538 in monthly Social Security benefits, after adding on delayed-retirement credits worth an extra 32%. You can see that Social Security doesn't replace a huge portion of earnings, but it's still a significant contribution.
What is a good amount of money to retire with comfortably? ›
By age 50 : Aim to have five to six times your combined salary in retirement savings by the time you and your spouse are 50 years old. By age 60 : Aim to have seven to eight times your combined salary at 60 years old.
What is a decent amount of money to retire with? ›
How much do I need to save to retire? A good rule of thumb is that your retirement income should equal about 80% of your pre-retirement income, says Steve Sexton, financial consultant and CEO of Sexton Advisory Group, a retirement-planning company.
What percentage of people have 500000? ›
In other words, 50% of the population has a net worth below that threshold, and 50% has a net worth above it. People in the richest 20% are worth at least $500,000, according to Harness Wealth's data.
The 80% rule: Some experts will cite the "80 percent rule" of retirement planning, which states that you should plan to live on 80 percent of your pre-retirement income to maintain a similar lifestyle. So if you earn $100,000 per year, you should aim for a retirement income in the range of $80,000 per year.
How much should a 72 year old retire with? ›
Financial experts generally recommend saving anywhere from $1 million to $2 million for retirement. If you consider an average retirement savings of $426,000 for those in the 65 to 74-year-old range, the numbers obviously don't match up.
What percent of people max out their 401k? ›
Employees 50 and older can contribute an extra $7,500, up from $6,500 in 2022. In 2021, roughly 14% of investors maxed out employee deferrals, according to 2022 estimates from Vanguard, based on 1,700 plans and nearly 5 million participants.
What is the highest Social Security payment? ›
3 steps to claiming the $4,555 max monthly Social Security...
- Step 1: Work a minimum of 35 years. ...
- Step 2: Earn an income equivalent to or greater than the wage cap. ...
- Step 3: Delay your Social Security claim until age 70.
The top 1% represents about 1.3 million households who roughly make more than $500,000 a year -- out of a total of almost 130 million.
How long will 500k last in retirement? ›
According to the 4% rule, if you retire with $500,000 in assets, you should be able to take $20,000/ yr for a 30-year or longer. Additionally, putting the money in an annuity will offer a guaranteed annual income of $24,688 to those retiring at 55.
Is 500000 considered wealthy? ›
According to the most recent data available for fiscal year 2019, an income of $540,009 per year puts you in the top 1% category. Based on that figure, an annual income of $500,000 or more would make you rich.
