Retirement can be an overwhelming prospect. The thought of having to live without a paycheck for years on end is downright terrifying for some people. You can alleviate some of this stress by starting to save for retirement early, but what if life happens and you haven’t got the million-plus that most financial experts say you need?
Luckily there are ways to stretch your retirement dollars so that you aren’t working until you’re 80. The trick is learning how to do more with less and rethinking what retirement looks like. Not everyone is sitting on a pile of cash when they decide to retire. With discipline and a strategic spending plan, you can blissfully drift into your golden years worry-free. Here is how to retire on $500K.
Evaluate Your Retirement Income
In all honesty, retiring with $500,000 is easy, it is the living comfortably that may be the hard part. First, you will need to decide your desired retirement age. Obviously, the later you retire, the further $500,000 will take you. Retiring early will mean that you will need to stretch your income even further. Retiring before you are eligible for Social Security will make it even more challenging.
The earliest possible retirement age where you can collect Social Security is 62, but you will not receive all of your benefits until age 67 (for most people). Social Security benefits can help cushion your monthly income, otherwise, you will have to live solely on what you have saved.
Understanding the 4% Rule
Any hopeful retiree needs to understand the 4% rule. Most financial professionals recommend using this as a base. Using this guideline, you should expect to withdraw 4% of your retirement assets each year (or less) and then adjust each year going forward for inflation.
Experts believe that following the 4% rule will allow you to cover expenses for 30 years. Four percent of $500,000 is $20,000. Thus, you would have $20,000 to live off for your first year of retirement. If you are eligible for Social Security benefits you can add that as monthly income.
Make Adjustments to Your Lifestyle
Now that you know roughly how much money you will have to live on each year, you can decide whether you need to adjust your lifestyle. Before you start dipping into your nest egg, consider writing out a budget. Write out all of your expenses, and decide what are necessary expenditures. Make sure to factor in things like healthcare which can be outrageously expensive if you do not qualify for subsidized insurance.
Depending on how much you spend each month, even some of your necessities may need to be adjusted to accommodate a lower income. For instance, if your rent is $1,500 per month, you might want to consider downsizing in an effort to lower your costs and make it more manageable to live on $20,000 (plus Social Security) per year.
You can also examine whether relocation is a viable option. The cost of living differs drastically depending on where you live in the United States (or even abroad). Choosing a region with a lower cost of living may help you stay within your retirement budget and stretch those all-important dollars.
Find Ways To Increase Your Income
Not interested in cutting back? Think about ways that you can increase your income. One option may be to take a part-time job. If you do not need your full income, you can find a side hustle that actually makes you happy. Retirement is all about enjoying life, which doesn’t necessarily mean you sit idle.
Prior to retiring, you may want to work with a financial advisor. A financial advisor can help make your money work for you. They will evaluate your situation and determine whether you should invest or place your money in a high-yield savings account.
Wait It Out
Perhaps not the words you want to hear if you are eager to quit your daily grind, but there is some logic in waiting a few years before you retire. The older you are, the further your $500,000 will go during retirement. Plus, if you wait, you can take advantage of Social Security increases up to the age of 70.
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