Retire with $500k: a complete guide
Here’s everything you need to consider, from retirement income taxes to wealth-increasing tips, if you plan to retire with $500k.
Summary
If withdrawing $20,000 from the age of 60, $500k will last for at least 25 years.
Retirement plans, annuities and Social Security benefits should all be considered when planning your future finances.
You can retire at 50 with $500k, but it will take a lot of planning and some savvy decision-making.
Speaking to a trusted financial advisor is the right move to ensure your retirement savings align with your goals.
Can you retire on $500k?
Yes, it is possible to retire comfortably on $500k. This amount allows for an annual withdrawal of $20,000 from the age of 60 to 85, covering 25 years. If $20,000 a year, or $1,667 a month, meets your lifestyle needs, then $500k is enough for your retirement.
However, if you consider different spending scenarios, check the table below, which illustrates how $500k, with an average annual return of 6% before taxes and a 22% federal tax rate, would perform under different yearly spending situations after a 25-year period:
| Initial savings | Annual Spending | Enough? | Ending Balance after 25 years | Required Initial Savings |
|---|---|---|---|---|
| $10,000 | Yes | $745,246 | $126,154 | |
| $20,000 | Yes | $440,001 | $288,462 | |
| $500,000 | $30,000 | Yes | $134,757 | $450,770 |
| $40,000 | No | -$170,488 | $613,077 | |
| $50,000 | No | -$475,733 | $775,385 |
Based on the calculation in the table, if your expected annual spending exceeds $35,000, $500k might not be enough to cover your expenses over 25 years in retirement.
How long will $500k last in retirement?
$500k can last you for at least 25 years in retirement if your annual spending remains around $20,000, following the 4% rule.
However, it will depend on how old you are when you retire and how much you plan to spend each month as a retiree.
Assuming an average annual return of 6% before taxes and a 22% federal tax rate, the table below offers a detailed breakdown of how long $500k can last across various annual spending scenarios:
| Spending Per Year | Years It Will Last | Total Interest | Total Withdrawal | Total Taxes |
|---|---|---|---|---|
| $20,000 | 33 | $1,035,000 | $660,000 | $145,200 |
| $40,000 | 17 | $510,000 | $680,000 | $149,600 |
| $60,000 | 11 | $330,000 | $660,000 | $145,200 |
| $80,000 | 8 | $240,000 | $640,000 | $140,800 |
Retirement plans, annuities and Social Security benefits should all be considered alongside the figure you have sitting in savings, and you should also bear in mind that expenses as a retiree tend to be low. Especially if any children are now financially solvent adults and large loans, such as your mortgage, have been paid off.
Ready to take charge of your retirement planning? Plan your retirement confidently with our retirement calculator. It provides personalized insights for your financial future.
Can I retire on 500k plus Social Security?
As we have established, retiring on $500k is entirely feasible. With the addition of Social Security benefits, the possibility of retiring with $500k becomes even more possible.
In retirement, Social Security benefits can provide an additional $1,800 per month, on average. This additional income can help you achieve the retirement lifestyle you want.
You can start receiving Social Security benefits as early as 62. However, these will be at a reduced amount. Your full benefits only become available once you reach full retirement age. For those born during or after 1960, this is 67.
Social Security benefits are also taxable, which is important to consider if you plan to rely on this money to supplement your retirement income. How much tax you pay depends on your overall retirement income and several other factors, including the state you reside in, as some taxes opt not to tax Social Security.
What are the income taxes applicable to retirees with $500k?
When working through your later-life checklist and financially preparing for retirement, you must consider how taxes will factor in. You’ll need to know how much they will reduce your final amount of accessible, usable income. With $500,000 in savings, your bill likely won’t be extortionate – especially if you plan to spread withdrawals across 20 years or more. But ultimately, your tax liability will come down to:
Your filing status (single filer, head of household, married filing jointly, etc.)
Where you live (different states have different tax rules).
Where your retirement income is from (different sources have different tax rules).
Your total amount of annual income.
Regarding the impact of your income source, if you have a traditional pre-tax IRA (Individual Retirement Account), your distributions will be levied for tax at the point of withdrawal. Whereas if you have an after-tax Roth IRA, you’ll already have paid that tax when the money entered the account and can withdraw tax-free.
Here’s a quick example: You plan to retire at 65 and hope your retirement savings will see you through 20 years. Distributing $500,000 evenly across these 20 years, you’re looking at monthly payments of $2,083 and an annual income of $25,000. This would place you within the second-lowest federal income tax rate band of 12%.
Can you retire at 50 with $500k?
It’s undoubtedly feasible to enjoy an early retirement at 50 with $500,000, but it won’t necessarily be easy, and it might necessitate some compromise on your part.
Applying the 4% percent rule discussed earlier, you can theoretically withdraw $20,000 per year, or $1,667 per month, for 30 years, taking you up to age 80. This figure may be lowered or increased in value by inflation and market conditions. If you increase your life expectancy to 85 or 90, it will be reduced by those additional years.
Overall, with a moderately frugal lifestyle and expenses totaling less than $20,000 each year, you should be able to leave the workforce earlier than you once anticipated you’d be able to. Even if you can’t do it by age 50, getting close at that point might mean you could make it happen at, say, 55.
Three routes to increased savings
You may now want to figure out how to increase your savings, growing that $500,000 to $600,000 or more to give yourself some additional breathing room. Some extra disposable income as a retiree. Our best recommendations are as follows:
Adjust your monthly budget and save where possible – try to avoid regularly spending your money on unnecessary things that matter less to you, in the grand scheme of things, than a happy and comfortable retirement. Set achievable lifestyle and financial goals with proper consideration of your future self. Cut back where you can, and redirect that money where it can be better used.
Build a varied portfolio of investments, seeking expert advice – a solid and stable investment portfolio comprising several types of securities could be very helpful to you, significantly boosting your savings and improving your retirement. If you don’t know where to begin, speak with an expert financial advisor to get started on your journey into investing.
Find the right retirement and pension products – many different savings accounts and products are available that can be helpful to you as a retiree. Annuities, for example, convert your savings into a guaranteed monthly income for a given period. This period could be the rest of your life if you purchase an annuity with a lifetime income rider.
The bottom line
If you’ve managed to save $500k for retirement, this is a viable savings for your post-work life.
This will guarantee you a valuable degree of security and comfort in your later years, and it’s a figure many will never reach
For retirement planning advice and investment guidance, connecting with an experienced financial advisor is highly recommended. They can guide you through the daunting world of retirement planning and lead you to success. Get started with Unbiased and find your perfect match.
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Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.