How Far Does $500K Go in Retirement? It Depends on 3 Factors

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When Americans think about how much savings they need to retire, they often think in terms of retirement account balances. You might set a retirement savings goal of $500,000, for example.

But unless you know how that balance breaks down into monthly income, you won’t know whether it’s enough to cover your expenses and leave room in your budget for spending on travel, hobbies and other “wants.”

What $500,000 looks like in terms of monthly spending depends on how long you need the money to last, how you calculate income from your savings and how you invest the money.

How Long Does the Money Need To Last?

To calculate your monthly income from $500,000, you’ll need to determine how long you’re likely to live in retirement — or the number of months you expect to withdraw money.

If you retire at 65, you can assume a 20-year time horizon, according to the Teachers Insurance and Annuity Association of America. That’s 240 months, or $2,083 per month in spending, to take the principal from $500,000 to $0.

Returns on Your Investment

Remember that the unused portion of your retirement savings changes due to interest earnings and investment gains and losses. You can apply the 4% rule to figure out your monthly spending allowance in a way that accounts for the changing balance over time.

The 4% rule says that you can withdraw 4% of your retirement savings in the first year of your retirement, then withdraw 4% plus inflation in subsequent years. That would give you $20,000 in income in the first year, which comes out to $1,667 per month. 

This rule assumes a 30-year time horizon and a portfolio allocated evenly between stocks and bonds. Charles Schwab offers suggestions for customizing the withdrawal rate to reflect your personal situation.

• Reducing the time horizon to 20 years and changing the allocation to 60% stocks and 40% bonds and cash lets you withdraw 5.4% to 5.9% per year. The monthly income would be $2,250 to $2,458 per month.
• A 10-year time horizon with 20% of your portfolio in stocks and 80% in bonds and cash would let you withdraw 10.2% to 10.6% per year. That would provide a monthly income of $4,250 to $4,417.

How Your Money Is Invested

The 4% rule assumes you hold your savings in brokerage accounts. But some retirees roll their retirement savings directly into an annuity, per Thrivent.

If you were to purchase a $500,000 immediate lifetime annuity, which begins paying out right away and pays you for the rest of your life, your monthly income might look like this, according to Annuity.org.

• $3,002 for a male, $2,919 for a female, if purchased at age 60.
• $3,269 for a male, $3,151 for a female, if purchased at age 65.
• $3,671 for a male, $3,498 for a female, if purchased at age 70.

Final Thoughts: Consider Getting Professional Advice

No one calculation can tell you with certainty how much monthly spending a $500,000 nest egg allows. If you think you’re cutting it close, consider working with a certified financial planner (CFP). They can make a plan for you based on highly detailed income and expense projections and offer investing suggestions based on your goals and tolerance for risk.

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