Are you making plans for retirement and wondering, “Can I retire at 60 with $500,000?” In many cases, the answer is yes. Whether you can retire with $500,000 will depend on your lifestyle and how you’ll manage the funds. But the dream of a few extra years of retirement and a comfortable lifestyle is achievable for many. Here’s what you need to know.
Table of contents
- Can I Live Off the Interest of $500,000?
- Can You Retire on $500K?
- Understand Your Retirement Goals
- Assess Your Current Savings
- Know Your Sources of Retirement Income
- Use Strategies to Increase Your Retirement Savings
- Consider Lifestyle Changes
- Manage Retirement Funds
- Work with a Financial Adviser
- Can You Retire at 60?
- Frequently Asked Questions
Can I Live Off the Interest of $500,000?
If you retire at 60, you’ll need to plan for 20 to 30 years of retirement. For that reason, the best way to retire with $500,000 is to live off the interest. Here are a few examples:
If you earn 9.89% interest, the average return of the S&P 500 for the last 30 years, you’d make $49,450 in interest the first year. However, to account for inflation over the next 20 to 30 years, it’s wise to leave a minimum of 2% to 3% of interest earned in the account.
That means you could live off of 6.89% and retain 3% interest in the account. In that case, in the first year, you’d have $34,450. Each year after, you’d have approximately the inflation-adjusted equivalent of $34,450 in today’s dollars. This could be a comfortable retirement for many people if they have a simple lifestyle, Social Security or additional income streams.
But those are highly optimistic interest return projections in today’s markets. If instead you only earn 6% total interest, you’d have 3% to 4% to live off of, which on $500,000 would only be $15,000 to $20,000 per year. Again, with Social Security and/or additional income streams, this could be enough for a simple retirement. Keep in mind that unless the investments are in a Roth IRA, you must pay taxes on the projected income amount.
But if you purchase a $500,000 annuity with a lifetime income rider and plan to retire in 10 years, you’d receive $54,916 per year for the rest of your life. That is a way to guarantee income on a $500,000 retirement lump sum.
Can You Retire on $500K?
If you plan to retire on $500,000, make sure you:
Understand Your Retirement Goals
Determining what you need for a comfortable retirement is an essential first step. The projections above show a simple retirement. You won’t have a budget for a second home (unless both homes are already paid off) or regular international travel. While many people can live comfortably on $50,000 per year, for some, that lifestyle won’t match what they’re accustomed to.
Be realistic about your lifestyle expectations in retirement. Consider regular living expenses like housing, food, transportation, insurance and healthcare as well as lifestyle changes you want to make. If you’re planning to spend the winters in Florida or live on a private island in the Caribbean, your retirement budget will need to adjust accordingly. Learn more about calculating how much you need to retire.
Assess Your Current Savings
Analyze your retirement nest egg at the moment and consider whether it’s enough to last throughout your retirement years with your projected annual expenses. If you plan to spend $200,000 per year, a $500,000 retirement nest egg won’t get you far. But with more modest lifestyle options, working to build your net worth to retire at 60 with $500,000 is achievable.
Know Your Sources of Retirement Income
Investments, annuities and Social Security aren’t the only viable sources of retirement income. In addition, you may have a 401(k) or employer-sponsored pension plan as well as tax-advantaged accounts like Roth IRAs or traditional IRAs. Other common sources of retirement income include business ownership, royalties, affiliate marketing or other passive income, real estate investments and savings.
Use Strategies to Increase Your Retirement Savings
You’ll need to save as much as possible by cutting expenses while working to earn more to increase your retirement savings. While preparing for retirement, you can invest more aggressively (and take higher risks) to potentially build income faster. Likewise, you can work for more years and retire later, take on additional jobs or start a new business to prepare for early retirement. Consider:
- Aggressive investments (speak to a financial adviser about this)
- Freelance work for extra income
- Working more years before retirement
- Starting a business or adding an additional income stream
- Real estate investment
Consider Lifestyle Changes
When planning for retirement, consider lifestyle changes you may need to make to accommodate your retirement plans, such as downsizing your home or cutting back on expenses. If you have a large home and will be happy in a smaller home or condo for retirement, this can be a source of additional retirement savings. If you’ve paid off your home, you’ll also save on monthly mortgage payments in retirement.
Manage Retirement Funds
Even in retirement, you’ll need to manage your retirement funds and make them last throughout your retirement years. This can include more modest interest projections, accounting for market downturns, purchasing annuities and creating multiple income streams to increase retirement security. A financial adviser can help.
Work with a Financial Adviser
Speaking with a financial adviser can help ensure that your retirement funds last through your lifetime. These professionals will be able to highlight tax advantages, additional savings opportunities and low-risk retirement investments to ensure your funds last.
Can You Retire at 60?
For many, early retirement is achievable. Consider your current savings, lifestyle goals and other income streams or pension plans to calculate projected income. This, balanced with expected expenses, will help you determine whether you can retire at 60. Whatever projections you make, be sure to account for taxes. With planning, achieving your desired retirement lifestyle to retire at 60 is possible.
Frequently Asked Questions
Is $500,000 enough to retire?
Yes, for many people, $500,000 is enough to retire. Whether it works for you depends on your desired lifestyle and annual spending.
What are some strategies for retiring at 60 with $500,000?
Strategies to retire at 60 with $500,000 include saving in tax-advantaged accounts, purchasing annuities and building multiple income streams so that you’re not only dependent on $500,000 at retirement.
Can I retire on $500,000 plus Social Security?
Yes, for many people, retiring on $500,000 plus Social Security will give them a comfortable retirement lifestyle. Be honest about your expected lifestyle and annual spending to understand whether retiring on $500,000 plus Social Security will work for you.