According to the data from the US Census Bureau, 50% of women aged 55-66 have no personal retirement savings. Of those who do, only 22% have $100,000 or more in savings. So, how much should you save before you retire? Can you retire with 500k, or do you need more?
Keep reading to find out if it’s possible to retire with 500k — and how to do it.
Is it realistic to retire with 500k?
Like so many financial topics, the answer is maybe.
Some people could easily retire with 500k. Others will need a lot more to maintain their lifestyle.
The good news? It’s pretty easy to calculate your estimated future expenses to see if you can retire with 500k.
For example, say there are two neighbors. Both make the same amount of money, have the same costs of living, and have 500k saved for retirement. They’re both getting ready to retire.
However, one has paid off their mortgage. The other has 5 years left with a monthly payment of $2,000.
Over the next 5 years, the neighbor with a mortgage will pay $120,000 in mortgage payments. If they retire with 500k now, they’ll lose significant retirement income to housing costs.
Meanwhile, the neighbor who’s paid off their house won’t have the added expense of mortgage payments. Their 500k in savings might be enough to cover their other expenses for the remainder of their life.
Factors that affect your needs in retirement to help you determine if you can retire with 500k
There are tons of factors that determine how much you need to save for retirement. While it can feel a little overwhelming to think about all of them, it’s not as scary as it sounds.
In fact, you can start making a list right now of the different costs you might face. Be sure to include the most important expenses for you.
For example, you want to travel in your retirement years. You’ll need to budget more retirement savings for travel but might need less for housing costs.
On the other hand, you may have several children (or grandchildren), and you want to help them pay for higher education. You’ll want to make sure to include education savings in your retirement planning.
Take a look below at some of the most common factors that go into your retirement planning needs.
Cost of living
Your cost of living is the cost it takes to maintain a certain standard of living in a specific place for a period of time. Cost of living expenses includes housing, groceries, utilities, and other basic expenses.
A cost of living index helps compare the cost of living in different places. The index shows the cost of living relative to the national average (rated as 100). States or cities that have a higher cost of living will be over 100, while those below the average will have an index less than 100.
For example, if you decide to retire in Mississippi, the average cost of living is 83.3 — almost 17 points less than the national average. Overall, your everyday costs should be lower than in other places.
On the other hand, retiring in Hawaii means paying more for necessities. The cost of living in Hawaii is 193.3. That’s a whopping 93 points more than the average.
Your age at retirement can greatly affect the question, "can I retire on 500k?"
Someone who retires later in life needs, in general, less time with their retirement savings. Someone who retires early will likely have to cover their expenses for more years.
Let’s say two people decide to retire with 500k. Both live to be 100. One retires at 50, while the other retires at 70.
The 50-year-old has to make their 500k savings last for 50 years. The 70-year-old only needs their money to last for 30 years.
Ongoing health conditions or concerns will affect retirement needs.
Being in good overall health at retirement can lower your medical expenses in retirement. Someone with a chronic condition will likely have more medical costs after retiring.
Do you like the finer things in life? It could cost you in retirement.
Your lifestyle will have one of the biggest effects on your retirement needs.
Or, let’s say you live a minimalist lifestyle and don’t buy anything other than what you need. Your everyday expenses are likely to be a lot less than someone who invests in luxury goods and experiences.
Most retirees don’t live on their retirement savings alone. It’s common to have other sources of income in retirement, such as a pension from work or Social Security benefits.
The amount of extra money you have coming in each month in retirement will change how much you need to save.
Any debt you carry into retirement still needs to be paid — even if you’re no longer earning a salary.
Common debts you might have in retirement include:
- Car loan
- Credit Card Debt
- Student Loans (for you or your children)
- Personal loans or lines of credit
Child or grandchild expenses
Depending on when (or if) you have children, you might still have costs associated with them when you retire.
For example, you and your partner decide to have kids later in life. Your children are still in high school when you plan to retire. You also want to help them pay for college expenses.
You’ll have to cover their immediate needs like food and shelter. Plus, you’ll need to have enough retirement savings to help them pay for education in the coming years.
When is the best time to retire?
Your retirement age is a completely personal choice. Some people dream of retiring at 45 or 50 years old. Others plan to work until their full Social Security retirement age to maximize their Social Security benefits.
You can choose to retire at whatever time you want. However, there are a few important things to consider:
- 62 years old is the age to receive Social Security benefits.
- Social Security benefits are reduced if you retire before your full Social Security retirement age.
- Retiring early means you’ll have to stretch your retirement savings over a longer time.
- Some employers have retirement benefit requirements, such as pension retirement ages.
Where can I retire on 500k?
What location you choose to live in retirement could make or break whether you can retire on 500k.
Choosing a place that has a lower cost of living might make it possible — or easy! — to retire with 500k. A more expensive cost of living could mean you need to start saving more each month before retiring.
Can you retire on 500k in the US?
Most retirees plan to stay in the US when they retire. Luckily, there might be places where you could retire with 500k in the US.
While you’ll still need to consider your health, lifestyle, and family expenses, comparing the cost of living in various places could help you find the right place to retire.
Most of the lower cost of living in the US is in the South and Midwest. The top ten least expensive states are:
The higher costs of living in the US tend to be in the coastal regions. The top ten most expensive states in the US include:
- District of Columbia
- New York
- New Hampshire
Can you retire on 500k internationally?
Some retirees plan to move overseas or abroad when they leave work.
Popular destinations include:
- Dominican Republic
- Costa Rica
Many of the most popular international retirement destinations include tropical locales in South America, Eastern Asia, and the Caribbean. Significantly lower costs of living could make these locations attractive if you’re trying to retire with 500k.
Other popular retirement locations include countries in Europe with tax treaties with the US. This helps retirees avoid the cost of double taxation on their retirement income.
While many European countries have a similar or even higher cost of living than the US, most provide excellent and affordable healthcare coverage — a major benefit for older ex-pats.
What about Social Security?
Social Security is a government-run retirement program for qualified American workers. If you earn enough over your lifetime, you’ll qualify for benefits. Your benefit is generally delivered as a monthly check meant to help replace your income in retirement.
Eligibility for Social Security benefits depends on work credits. You’ll have to have 40 credits by the time you retire to be eligible for Social Security benefits. Workers earn credits based on the amount they earn, with a limit of 4 per year.
For example, say a credit is $2,000. You make $6,000 this year. You’ll earn 3 work credits toward Social Security.
Once you qualify, your benefit amount is usually calculated using an index average of your monthly earnings throughout your career. The average Social Security income for retirees is about $1,670 per month.
Will your Social Security benefits be enough to supplement your retirement savings?
That depends. You’ll want to calculate your estimated Social Security benefits into your other retirement costs, such as housing or healthcare.
Can a pension help me retire?
A pension is a type of employer-sponsored retirement plan. Unlike a 401(k) or IRA, you don’t contribute to your pension.
Instead, your employer contributes to an investment portfolio for workers. When a worker retires from the company, the employer agrees to make monthly pension payments for the rest of the employee’s life.
Employers calculate pension amounts using the length of time the employee worked for the company. Someone who retires after 30 years of working will receive a larger pension than someone who only worked at the company for 5 years.
Pensions are a lot less popular than in the past. Most employers have switched to providing 401(k) plans instead of pensions. However, some industries are more likely to offer pensions, such as:
- Public teachers
- State and local government jobs
- Utilities and transportation
- Union positions
If you have a pension and work for a company for a long time, you may need to save less for retirement. However, you’ll still have to consider your future costs in addition to your retirement income.
Other retirement income
Your 401(k), pension, or other retirement accounts aren’t the only way to earn money in retirement. Some retired workers find ways to increase their income even if they’re not working a traditional job.
Consider all of the ways you might earn income when you retire. This will help you determine if you can retire with 500k.
An annuity is an insurance product. You can think of it as income insurance if you outlive your regular income.
Annuities work by converting an initial premium investment into regular payments in retirement. There are various types of annuities that you can customize to your needs.
However, annuities can be costly. Most insurance companies charge investment management fees and other costs to maintain your annuity.
You may decide to get a part-time job in retirement. Whether you start a side hustle or go back to the office part-time, a part-time income can help offset retirement costs.
Be sure to talk with a Social Security representative to understand how working in retirement could affect your Social Security benefits.
Are you planning to sell your house and move when you retire?
Many retirees downsize to a smaller home or move locations altogether. If you move somewhere with lower housing costs, you could make money on the equity in your home. As an appreciating asset, your home could help you pay for retirement expenses.
For example, you and your partner have $500,000 of equity in your home. You sell it and get all of your equity out of the sale.
You purchase a new home for $300,000. The remaining $200,000 can be added to your existing retirement savings.
Not all of your savings will be in retirement-only accounts. You could retire with a savings account or non-retirement investment accounts. This money can help you pay for retirement expenses and supplement your retirement savings.
Using the 4% rule to retire with 500k
The “4% rule” is a guideline to help people plan for retirement. Created in 1994, the rule is often a go-to starting point for retirement planning. Following the rule, retirees should theoretically know how much they can spend per year in retirement.
Using the 4% rule could help you estimate your retirement savings needs.
What is the 4% rule?
The 4% rule estimates how much of your retirement savings you can spend per year for 30 years after retiring.
The 4% rule states that you can spend 4% of your retirement savings in the first year of retirement. After the first year, you adjust your initial spending amount by inflation. This helps you maintain the same amount of spending power year over year.
For example, you have $100,000 in retirement savings. You could spend $4,000 the first year.
In the second year, inflation is at 3%. You calculate your second-year spending by multiplying $4,000 by inflation (1.03) for $4,120.
4% rule example
How can you use the 4% rule if you have 500k in retirement savings?
First, calculate your spending allotment for the first year of retirement. Four percent of $500,000 is $20,000. This means you should only spend $20,000 of your retirement savings in the first year.
After that, you can recalculate your yearly budget using inflation.
Let’s say the second year of your retirement inflation is 1%. Your new yearly budget is $20,200.
In the third year of retirement, inflation jumps to 4%. You multiply 4% inflation (1.04) by your second-year budget. In your third year of retirement, you could safely spend $21,008.
Remember, the 4% rule is for 30 years of retirement. This means you’d need to retire around 60-70 years of age. If you retire early, you risk running out of funds in 30 years.
Is the rule accurate?
The 4% rule isn’t a perfect calculation. Some financial experts criticize the rule because it’s not custom to each unique financial situation. The economist who came up with the rule also didn’t factor in costs like investment fees or volatile markets.
Still, the 4% rule is a great starting point for estimating your retirement income. From there, you can fine-tune your retirement saving and spending habits.
Bottom line: Can I retire with $500,000?
Retiring with $500,000 could be realistic. Whether you need more or less depends on a range of individual factors — from your location to your health.
When deciding "can I retire with 500k", the best way to prepare for retirement is to focus less on just the dollar amount and more on maximizing your investments.
Diversifying your assets, for example, could help you overcome market downturns and maintain steady growth in retirement savings.