How long will $300,000 last in retirement? The answer to that depends on a variety of things: your lifestyle, your lifespan, your investments and any other income you have, to start. Let’s break down whether $300,000 is enough for your retirement and some tips you can employ to stretch your retirement dollars. A financial advisor can help you plan and save for retirement.
How Long Will $300,000 Last in Retirement?
To make $300,000 last in retirement, you need to be smart with your money. While it’s not impossible, it’s also not ideal. Here are a couple fictional examples of how this can play out.
Example 1: Modest Living
Edie and Jim are both 68 and own their own home in Akron, Ohio. They both worked and saved together. Combined, they receive $48,000 a year in Social Security income (SSI). Because of smart investing, their $300,000 is in a portfolio that sees a 6% return a year. That means their portfolio produces $18,000 in the first year. They make monthly withdrawals of $1,000 to help them cover living expenses, or $12,000 annually, which is a 4% withdrawal. At this rate, their portfolio will grow by $6,000 in the first year, and steadily compound after that
Combined with SSI, that puts their annual income at $60,000. This is enough for Edie and Jim to live comfortably, but they’re not taking large trips or making big purchases. This is also not accounting for rising costs due to inflation, large, unexpected costs and taxes. On the other hand, if they’re able to continue to live this affordably, they can estimate their $300,000 in savings will last approximately 25 years.
Example 2: Outside the Means
Sal and Pat live in Pensacola, Florida, where they have a mortgage on a condo. They’re the same age as Jim and Edie and receive the same SSI. However, because their investment portfolio leans conservative, it only delivers a 4% return, or $12,000 per year. Because of their higher expenses, they withdraw $3,000 per month, or $36,000 a year. This means that they’re withdrawing at a deficit of $24,000 every year. That’s a hefty 8% withdrawal rate, double the 4% rule of thumb that guides many retirees.
At this rate, with no extra investment or reduction in expenses, their retirement savings will run out at around 13 years. This is not a solid retirement savings plan. To make their savings last, they’ll need to drastically reduce their expenses or find an extra source of income or both. For instance, if they had part-time or freelance jobs and were able to reduce their withdrawal to $1,000 per month, even if just for a few years while they downsized, that could significantly extend the time their savings would last.
How to Make Your Retirement Savings Last Longer
If you want to retire with $300,000 in your accounts, there are definitely ways to do it. You need to look into how to maximize what you have while reducing costs. Here are some simple ways to make your retirement savings last longer.
Have Supplemental Income
Supplemental income is part of most people’s retirement plan. When you retire, you go from having one primary income stream to several streams. These include your retirement savings, SSI, pensions, annuities and other income sources.
For many people, retirement doesn’t mean they stop working altogether. In fact, many people enjoy working in a smaller capacity. Whether that’s a part-time job, freelancing or doing consulting, the work provides money, but also mental and social stimulation.
Another source of supplemental income is passive income through investments. For instance, say you own some real estate. You can receive passive income in the form of regular, monthly rental payments. How much you receive depends on the costs to maintain the property, the value of the property and how desirable the location is.
Another option to stretch your retirement savings is to retire later. If you retire at 70 instead of 60, that’s an extra 10 years of income and savings you’ve generated. It’s also 10 years where you don’t have to worry about living off of your retirement savings. Keep in mind, though, that working full-time later in life can get more and more difficult with every passing year. You’ll need to balance the quality of your life with the need to delay your retirement.
Fortunately for many, retirement can really simplify things. No longer do you have to keep up with the hubbub of your career, and if you have kids, they’re most likely out of the house. That makes it the perfect time to downsize. If you own your own home, or have a lot of equity, cashing out this asset may make sense. Downsizing to a smaller, more affordable house can put a large sum of cash into your account. You can invest that cash and use the return to bolster your retirement savings.
Put Your Money in Investments with Reliable Returns
Several types of investments can generate returns. Some are riskier than others, but a diverse investment portfolio can still make room for them. Here are a few investments that are known for generating returns:
- Annuities: Annuities are contracts you make with insurance companies. In exchange for your investment, the insurance company pays you a guaranteed amount, usually every month. There are a few different types of annuities, with different risks and returns. In general, they’re one of the more safe investments you can make. Just remember that the insurance company only makes those payments while you’re still alive.
- REITs: Real estate investment trusts are companies that own and operate real estate properties. Legally, they’re required to pay out 90% of their profits to shareholders. That means if you invest in well-managed REITs, you’ll see returns for many years to come. However, if a REIT is mismanaged, or if there’s a major shakeup in real estate, the investment could be at risk.
- High-dividend stocks: Dividend stocks are a type of security that regularly pay out money to investors. These payouts can range from 1% to 4% of your investment. Check out our list of 10 high-dividend paying stocks.
How long will $300,000 last in retirement? It all depends on your expenses, lifestyle, investment and supplemental income. Depending on where you are and how you live, it’s possible to make it work. There are several steps you can take – like downsizing or delaying retirement – to stretch your retirement savings.
Tips for Making the Most of Your Retirement Savings
- If you’re unsure how much you should be saving or how to invest, consider talking with a financial advisor. 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.
- Wondering how much you should contribute to your 401(k)? SmartAsset’s free 401(k) calculator will help you estimate how much you should have to retire and how much you should be saving.
- If you don’t have a 401(k), or want a more complete picture of your retirement savings, use SmartAsset’s retirement calculator to get a solid estimate of how much you need to save.
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