Most people widely accept that the retirement age is 65 because this has long been the traditional age needed for Social Security benefits. However, it has increased to 66 or 67 in recent times, depending on when you were born. Still, many people want to retire earlier than that, so that they have plenty of opportunity to travel or enjoy the life they want without worrying about full-time work. Retiring at 60 is a good balance between retiring early, but still giving yourself plenty of time to accumulate enough savings to live comfortably in retirement. However, many have less saved than they would like when it comes time to retire.
When you’re planning for retirement, you can work with a financial advisor to help manage your investments.
Is $500k Enough to Retire at 60 On?
The amount of money you need to retire, regardless of age, is going to depend entirely on a number of factors that are unique to your individual situation. 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. However, some people can retire on less.
Here are three things to consider when determining if you have enough money to retire:
- Desired lifestyle: The lifestyle you want in retirement will largely dictate whether this is enough money for you or not. Do you want to travel a lot? Do you plan on living in a foreign country? Answers to these questions will all provide different requirements for how much you need when you retire.
- Living situation: Do you own a home that is paid off where you plan on living, or are you going to be renting throughout retirement? The costs associated with those two things can create quite different financial needs.
- Your healthcare plan: At the age of 60 you won’t yet qualify for medicare so you’ll need to have a different plan to cover your healthcare costs, and they aren’t necessarily going to be cheap. If your health history isn’t as strong as others then those costs can increase even more.
There are obviously more items you can consider which could cause your retirement number to fluctuate. But these are the three of the largest expenses that are likely to affect everyone in varying degrees.
How Long Will $500k Last in Retirement?
The length of time it takes for your money to run out is going to again depend on your lifestyle and personal expenses. The amount of time the money will last also dramatically decreases if you have a spouse that is living off of the same amount of funds. How much you withdraw each year will also change the number of years that the money lasts quite a bit.
For example, the 4% rule would stipulate that you can safely pull $20,00o out of your funds each year and that $500,000 will last you at least 30 years. That isn’t a lot of money for one person, much less two. The average person in retirement during 2020 spent a little more than $45,000 for the year, according to the Bureau of Labor Statistics (BLS). So in order to get the money to last through your full life expectancy you would likely need to live a frugal life without a lot of extra expenses.
The length of time will also be impacted by how you’re investing your funds during your retirement years. If you are just living on the $500,000 out of your savings without investment during these years then the funds aren’t likely to last more than 10 or 12 years, depending on where you live. However, investing it in the right places can make it last substantially longer.
Where You Could Invest Your Money for Longevity
If you’re wanting to stretch your retirement dollars, then you’ll likely want to think about how you can earn more income from your funds or what types of investments have the highest returns over time. This is where becoming a more educated DIY investor or working with a financial advisor could be extremely helpful.
Some examples of investments that might help you with this are stocks, bonds, real estate investment trusts (REITs) or annuities. Bonds are the most stable but also provide the lowest potential return when compared to similar investments. Both stocks and REITs provide long-term stability but can fluctuate in the short term, which might really hurt you once you’re in retirement. Both can provide nice returns over the course of retirement, however. Some stocks can also pay dividends which could help you earn additional income from your investments.
A potential investment if you’re looking for a guaranteed income with your $500,000 during retirement could be an annuity. Annuities are essentially contracts you sign with an insurance company where you pay a premium in exchange for guaranteed payments at a later date. You can also use an immediate annuity that starts right away, but likely will provide less return than a longer term contract.
Investing in an Annuity
There are multiple types of annuities, such as fixed or variable annuities. The fixed annuity guarantees the return of the principal that you paid in along with a small amount of interest. Your payments do not change throughout the life of your contract. With a variable annuity, your principal is still guaranteed but the returns you receive are not. These carry a higher threshold of risk but can provide more return during retirement.
You can also get a lifetime income rider that guarantees you income throughout your entire life and not just for a specific period of time. This will cost more on the monthly premium, however. This might be the best way to stretch your $500,000 if you find that an annuity works for you.
There are many pros and cons to annuities, such as how they are taxed and when you can withdraw the principal. But ultimately it’s something worth considering if you have less income than you would like when you retire. Buying an annuity can help many people retire at 60 with only $500,000 without having to sacrifice their normal lifestyle.
Other Factors to Consider When Saving for Retirement
There are so many things to consider if you’re thinking about retiring early, though, that go beyond where your income will come from. Once you retire you’ll likely be on the hook for a number of things that you weren’t before, such as the full cost of your health insurance. Here is a list of four things that can change how much money you need to retire, which you should consider before taking the plunge:
- Inflation: The cost of retiring at 60 in 10 years will be more than the cost of retiring at 60 today. It’s important to make sure you take that into account when running your own numbers.
- Where you plan to retire: Retiring in New York City is going to be much different than retiring in North Dakota. Costs are going to vary widely so the cost of living where you plan to be will have a huge impact in how much money you need.
- Insurance: You’ll need to pay for health insurance since you won’t yet qualify for medicare, as discussed previously. You need a plan for where this insurance is going to come from and how much it’s going to be.
- Part-time work: Many people work part-time during retirement, especially if they retire early. It not only provides you with some extra income, lowering how far your $500,000 has to go, but it can also give you a nice purpose during the week.
Overall, retiring at 60 is doable with $500,000 but it may not be doable for you. It really depends on your personal living situation and what your potential expenses are going to be. When you’re able to calculate that, you’ll know how you should invest your funds to make sure you have enough income during retirement to live a sustainable life that you can personally enjoy.
Tips for Saving for Retirement
- Working to earn the money for retirement is time-consuming enough that simultaneously managing your retirement plans could be tough. Consider using a financial advisor who can help you create a retirement plan. SmartAsset’s free tool matches you with up to three 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.
- You can also use SmartAsset’s retirement calculator to help you estimate how much you may need to save in order to live the retirement life you’re looking for.
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