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Can I Retire at 60 with 500K? [PLAN OF ACTION]

Can I Retire at 60 with 500K? [PLAN OF ACTION]

Saving enough money for retirement can seem like an uphill battle, especially if you need a large amount to live comfortably. Whether your retirement savings are low, you're still in debt, or you simply want to know what the future holds when it comes to retiring at a reasonable age, you may be asking questions like, "Can I retire at 60 with $500K?" and "How much interest can I earn on that kind of money?"

Although it's entirely possible to retire at 60 with $500K, whether it's enough depends on several factors, including lifestyle, potential sources of other income, living expenses, and more. Therefore, it's important to have a solid strategy in place to stretch that money as far as possible.

In this post, we'll examine the reality of retiring on $500k at 60 and reveal some strategies to help ensure you don't find yourself facing financial hardship after you stop working. Before we dive in, let's review some of the basics.

business work group

How Much Do You Need To Retire?

If you're worried about being financially stable during your golden years, you're not alone. Around 75% of Americans agree the country is facing a retirement crisis, while most experts believe that a significant portion of the population won't have enough resources to live comfortably after they retire. In fact, 1.5 million Americans have been forced out of retirement—a trend being dubbed "The Great Unretirement."

The whole goal of saving enough for retirement is that your money should outlive you—not the other way around. But exactly how much is enough?

Unfortunately, there is no simple answer. It all depends entirely on your unique set of circumstances. Where you live, your lifestyle, other income sources like investments, and whether you plan to work part-time in retirement should all form part of your calculations.

Here's a basic list of factors to consider when budgeting:

  • Your monthly housing expense
  • Your monthly food expense
  • Your monthly transportation expense
  • Your monthly utilities
  • Insurance premiums (including health insurance, household insurance, car insurance, life insurance, etc.)
  • Travel
  • Emergencies
  • What type of leisure activities do you want to enjoy during retirement
  • How much do you want to set aside for monthly entertainment purposes
  • Whether you wish to support family members (e.g., do you want to put money into a custodial or educational savings account for grandchildren?)
  • Charitable giving

Keep in mind that if you retire before Medicare edibility, you may want more health coverage than if you're simply planning for supplemental coverage to Medicare when you're in retirement. You'll also want to budget for other incidentals like clothing, phone bills, and internet.

Making a list of your current and expected expenses will help you take stock of your priorities and what you want for an ideal retirement. However, there are some other important considerations when evaluating how big your nest egg should be, including:

  • How much money your spouse makes
  • How many children do you have at home under 18 years of age
  • The types of investments you want to hold in retirement and how much you intend to invest
  • Your location, which impacts your cost of living
  • Your overall health and what age you want to retire (a longer life span requires more savings)

Most financial experts agree that, on average, people need about 75%-80% of their pre-retirement income to live comfortably in old age. If your existing savings don't provide you with sufficient funds, then you need an action plan.

How To Retire On 500k At 60

According to the Transamerica Center for Retirement Studies, 24% of people don't have a retirement strategy at all, while 43% guess how much they'll need. To ensure you don't fall into these stats, here are some sound strategies to help you navigate retirement with ease.

1. Save Early And Often

Being proactive about saving and investing early will get you to $500K and beyond a lot quicker, especially if you're taking advantage of compound interest. If you don't already have one, open an employee retirement account like a 401(k). At the very least, contribute enough to trigger a full company match. If possible, try to max out your annual contributions. The maximum currently allowed is $20,500.

You should also consider supplementing retirement savings with a Roth IRA or a traditional IRA. With the former, you contribute after-tax dollars, so all future withdrawals are penalty-free and tax-free. With the latter, you contribute pre-tax dollars, so your money grows tax-deferred, but you pay tax on withdrawals.

2. Reduce Your Living Expenses

One easy way to make your retirement income more manageable is to decrease your living expenses. You should have a good idea of what you spend each month, so assess whether there are any things you can spend less on or do without in your old age. Another thing you can do is make big purchases before retirement so that you're not taking a massive chunk out of your nest egg later.

3. Pay Off All Debts

Debt payments and the interest that goes along with them can be a millstone around your neck at the best of times. When you're on a fixed income with a finite amount of assets during retirement, those debt payments are going to hurt so much more. Develop a debt repayment plan now and start clearing your debt as quickly as possible so that you can actually afford to retire later.

4. Consider Part-Time Employment, Consulting, or Freelancing

Depending on your circumstances, you may want to pad your retirement savings with supplemental income from a side hustle. In fact, for many retirees, giving up full-time work opens up opportunities to start something new. This is especially true for people who want the freedom retiring affords but who would also go nuts if they weren't part of the workforce in some capacity. Fortunately, gigs like freelancing or consulting allow you to charge premium rates for your skills and expertise while drastically cutting down on your hours.

5. Think About Moving To An Area With A Lower Cost Of Living

Another simple way to decrease budget bloat is to relocate to a less expensive area. Many retirees choose this option because it can drastically stretch their dollars. For example, the average monthly rental in California is $1777.67, whereas it's only $1083.75 in Georgia—a nearly $700 saving. If you've accumulated wealth, then this might not be the right choice for you. However, if you want to maintain your current standard of living for less, then a more affordable state or city might be your best option.

6. Wait Until You're Eligible for Medicare

Unless you have a disabling condition, you don't qualify for Medicare until you turn 65. Since many full-time positions provide access to healthcare benefits, consider waiting five more years to retire. Even if you don't receive medical benefits, you'll still be earning an income to cover healthcare expenses until you qualify for Medicare.

7. Wait to Draw Social Security

Perhaps one of the most dependable retirement strategies is to keep working as long as possible with the aim of drawing full Social Security benefits when you retire. Technically, you qualify at the age of 62, but waiting to draw means you'll earn around 8% more. This higher payout puts you in a much better financial position overall.

It's also important to keep in mind that drawing early penalizes you (and any surviving spouse who takes over your benefit) for life. Collecting benefits from your first day of eligibility means you'll only be able to draw about 70% of your benefit.

With that said, let's take a closer look at retiring on $500K plus Social Security.

woman business working

Can I Retire On $500 K Plus Social Security?

As of 2022, the average Social Security retirement benefit is $1,657. The higher income you earned and the more you paid in Social Security tax, the bigger your benefit payout. But is it enough?

The reality is that if you can make retirement work on $500K, anything you get in Social Security is a bonus. However, if you're expecting to live on Social Security alone, you're probably not going to cover bills-even less so now that inflation is skyrocketing.

Social Security should not be your fallback plan in lieu of savings. Instead, it should supplement any interest income you get from your savings and investments.

How Much Interest Will I Earn On $500 000?

Again, the answer isn't a simple one since it depends on a variety of factors, such as the diversity of your investment portfolio, interest rates, and investment terms.

For example, a savings account that pays a 2.5% interest rate will generate $12,500 in interest income each year, while stocks that gain 10% will generate $50,000. Bonds with a 3.34% interest rate will yield $16,700 in interest income annually. For this reason, most financial experts recommend creating a diverse portfolio that balances different types of investments with varying risk levels.

One rule of thumb frequently used for retirement spending is the 4% rule. It states that you should calculate the total of your investments and only withdraw 4% per year. You would then need to account for inflation in subsequent years and adjust accordingly. Following this formula means there's a good chance you won't outlive your retirement savings during a 30-year retirement.

In Closing

If you leverage your $500K to create income streams that are greater or equal to your expenses in retirement, then you're set to be financially stable in your golden years. However, you need a proper plan of action to truly maximize your dollars. The strategies outlined in this post provide an excellent start for you to do just that, so be sure to consider each one carefully and how it can fit into your retirement plan.