Can You Retire With $500k and How Long Will It Last?

Wondering, "Can I retire at 60 with $500K? For so many people, this is the million-dollar question.

We all hope to retire comfortably one day, but what does that really mean? For some people, retirement might mean quitting their job, downsizing their homes, and living on savings for the rest of their life. For 48% of retirees, it could mean working part-time, traveling the world, and spending more time with family and friends.

No matter what your retirement dreams entail, one thing is for sure – you’ll need to have a decent nest egg saved up to make it happen. Unfortunately, the majority of Americans aren't saving nearly enough money for their end-of-work life (according to a PwC study, one in four workers say they have no savings at all). 

So, can you retire with 500k? How long will your savings last? 

Keep reading to find out some important steps to take for retirement.

Factors to Consider

Financial planners frequently use the 4% rule as a formula to assist their clients in making retirement plans. 

According to the 4% rule, pensioners can withdraw 4% of their savings when they stop working and then adjust their withdrawals for inflation each successive year for 30 years.

The underlying premise is that if you can live on $20,000 annually, you ought to be able to retire with $500,000 in assets for 30 yrs (or longer) after you stop working. But the reality check here is that you might not be able to survive (and be happy) on $20,000, depending on your circumstances and preferred way of life.

Let's look at some of the factors that can affect how much you spend after stopping work:

Your Lifestyle

Lifestyle plays a huge role in retirement spending. Depending on your preferences, yours may be more expensive or less expensive than someone else’s. For example, if you’re like 70% of American workers who prefer to spend some of their end-of-work life traveling, then you will probably spend more than others who do not enjoy traveling as much.

The State Where You Live

Another factor that impacts spending is the state where you live. The cost of living can vary widely from one state to another. If you live in a state like Hawaii, which is the most expensive state to live in 2022, then this will result in higher retirement spending compared to someone who lives in a lower-income state with lower taxes and lower cost of living expenses.

Health Conditions

Your health conditions can also impact retirement spending. If you have a chronic condition such as heart disease or diabetes, your doctor may recommend that you take medication that can affect your ability to save money at any age.

Cost of Property

According to the Bureau of Labor Statistics, housing is one of the biggest retirement costs for older households, accounting for $16,219 annually (32.9 percent of annual expenditure). Mortgage, housing, and property maintenance for retirees are large expenses and can add up quickly, which is why most retirees prefer to downsize after stopping work.

Cost of Food

The cost of food is another big factor that affects retirement spending. In fact, according to the Bureau of Labor Statistics, older adults spend as much as $6,066 on food annually. This is 12.3% of most people’s annual expenditure.

Inflation

Retirees tend to spend more of their money on services and items that are significantly influenced by inflation, such as healthcare, housing, and food. Plus, inflation has surged at an extremely rapid rate, forcing consumer prices to rise by 9.1% from June 2021 to June 2022. This means that your money will not go as far as it did when you initially stopped working.

Financial planners normally recommend assuming an annual inflation rate of 3% when budgeting for retirement.

Is $500 000 Enough for a Single Person to Retire On?

For many people, the answer to this question is a resounding “no”.

After all, 500,000 dollars isn’t a lot of money when you consider the costs of healthcare, housing, and other basic necessities. Plus, a current belief among Americans is that they will need $1.25 million for a decent retirement, according to a 2022 Northwestern Mutual research.

But the truth is, it is possible to retire on $500,000 if your expenses are less than about $20,000 per annum. In fact, ​​a recent GOBankingRates poll found that 38% of Americans think that $500,000 retirement is doable. Only 14% of respondents think you need between $1 million and $5 million to retire, while 30% think you can do it with between $500,000 and $1 million.

However, remember that there are a lot of variables when it comes to determining how much you will need after stopping work — such as your age, health, and lifestyle.

Can a Couple Retire with 500,000 Dollars?

It's no secret that retirement can be expensive. But is $500,000 for retirement okay for a couple?

Census.gov data shows that in 2020, the average retirement income for married couples over 65 was $101,500. While things may have changed a lot since then, a couple may just be able to stop working on $500,000 today. 

But keep in mind that how long your savings endure will depend greatly on your lifestyle. You can stretch your $500k far further, for instance, if you're willing to live simply and don't intend to make major life changes (like traveling or establishing a business).

Obviously, this is only a general recommendation. Depending on your particular situation, you will require this amount or a lot more money. To be on the safe side, it is recommended that you aim for a monthly income of at least 70% of your pre-retirement income if you want a comfortable retirement, whether you are a single person or a couple.

Can I Retire on $500,000 Plus Social Security?

You've probably asked yourself this question a million times: is $500,000 enough for retirement plus social security? The answer, unfortunately, is not a cut-and-dry yes or no. 

Social Security payments are received by 90% of people aged 65 and over and account for 50% or more of the family income for at least half of them. This is different from your 401k. As a result, your Social Security payout is an essential component of your retirement planning. 

According to the Social Security Administration, the average monthly payout for people receiving Social Security at the age of 62 in 2022 is around $2,364. This amounts to ​​$28,368 annually. If you add $28,368 from social security benefits to the $20,000 benchmark retirement savings from your $500k nest egg, you could probably stop working on $500K plus social security. 

But you'll need to organize a spending plan for your retirement income that reduces taxes, as well as maximize your budget, investment returns, and Social Security benefits.

The best way to figure out what to do with your social security benefits is to consider social security tax planning so that you can optimize your income. But in the meantime, half a million dollars is a good start.

How Long Will $500,000 Last in Retirement by State

How long do retirement savings last? This is a question that comes up often, and it’s one of the first things people think about when they want to retire, especially when they look at the cost of living in their state. 

For example, you can’t retire on $500,000 if you live in Alaska or Hawaii and expect this money to last for a long time. But where can you retire and how long will your money last there?

Here are some of the best states to live in retirement, and some of the worst too. Find out how long $500k will last in retirement by state.

How Much Income will $500K Generate?

For a person planning for the future, you may not feel comfortable just dipping into your nest egg. You want it to be invested so that it earns you interest for the rest of your life. 

For some people, this means investing in fixed-interest savings accounts like a fixed annuity or CD. But how much income does $500,000 generate from annuities?

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.

If you retire at 65 and invest the $500k, you will receive $2,396 per month, and if you buy the annuity at 70, you will earn $2,605.

Of course, the exact amount of income you'll receive from your annuity will depend on other factors including the type of annuity you choose and the current interest rate. This is where you need asset protection retirement planning, so that you don’t make a wrong choice.

Frequently Asked Questions

Is It Possible to Retire at 45 With $500K?

The short answer here is maybe. With a $500K income, social security benefits, inexpensive living, and a little luck, this may be doable for some people, but not everyone. 

However, bear in mind that unless you get a financial windfall (in this case, be sure to hire a windfall financial planner), retiring at 45 would prevent you from entering your peak earning period, which might potentially raise your social security benefit.

Can You Retire with $500k at 50?

Yes. For many people, retiring on $500k is adequate. 

Using the 4% rule of thumb, a $500K nest egg plus a source of income like Social Security, and reasonably moderate expenditure should be enough to maintain a $20K per annum lifestyle (before taxes, if any) for at least 20 years. 

You can stretch it more if your expenses are less than $20,000. But while retiring at 50 with $500k may work for a single person, it may not work for couples.

Can You Retire On $500k at 55?

Yes, you can retire at 55 with $500k. 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. This interest will particularly come in handy for older couples with a single source of end-of-work-life income.

Will You Be Able To Retire at 60 with $500,000?

Retiring at 60 with 500k is doable if you plan to downsize, live a minimalist lifestyle, and supplement your savings through a pension plan, annuity, or Social Security benefit. At the age of 60, an annuity will offer a guaranteed income of $30,500/ yr for the remainder of the insured's life.

No matter your age, the amount of money you need to stop working will be determined entirely by your circumstances.

The Final Word

Hopefully, this guide has taught you how to retire with $500k. 

It's important to remember though that what works for one person may not work for another. And there's no one-size-fits-all answer to the question of how to invest or how much money you'll need for your golden years.

That being said, if you're looking for some guidance on whether or not retiring with $500k is possible, the best thing to do is speak with a financial advisor. They can help you determine what's realistic for you based on your individual circumstances.

Interactive Wealth Advisors (IWA) is a holistic wealth management firm that specializes in retirement planning. If you are worried about whether the size of your current nest egg is enough to accommodate your end-of-work life, IWA's team of financial advisors can answer all your questions.

We have a team of experienced financial advisors who can help you create a plan that fits your unique needs and goals.

Get in touch today.