What $500K in Retirement Savings Looks Like in Monthly Spending

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According to Fidelity, the average person between the ages of 65 and 69 has a 401(k) balance of $251,400. However, add-ons like real estate, annuities, insurance, non-retirement CDs, savings accounts and brokerage accounts can add to that tally, perhaps bringing it all the way up to a half-million dollars.

So, how much would a retiree with a $500,000 nest egg be able to spend every month without running out of money? Below we will break down the numbers, scenarios and possible outcomes. 

The 4% Rule Provides a Blueprint — With Caveats

Retirement planners have spent decades promoting the 4% rule as a guideline for gradually spending down savings. The logic is that retirees can safely spend 4% of their savings in the first year, then adjust for inflation each consecutive year. 

However, Charles Schwab shared several reasons why this is only a general guideline that must be tailored to each retiree, rather than a fixed rule that can be applied uniformly to everyone. Retirees should consider the following factors about the 4% rule before customizing it to their unique situation. 

• It assumes a 30-year retirement window.
• It assumes a 50/50 split of stocks and bonds. 
• It assumes that your spending will increase each year in line with inflation, regardless of portfolio performance. 
• It relies on historical market returns, which do not guarantee future performance.  
• It excludes investment fees and taxes. 

You’d Have Less Than $1,700 Per Month Your First Year

As is, the 4% rule would give you $20,000 in your first year or 4% of $500,000. That comes out to roughly $1,666.67 per month. 

According to the most recent data from the Social Security Administration, the average monthly retirement benefit is $1,950.27. Adding that to the tally, a retiree with $500,000 who collects Social Security could spend a much more livable $3,616.94 per month.

How Would the Second Year Change With Inflation? 

According to the most recent data from the Bureau of Labor Statistics, the current inflation rate is 2.4%. Presuming that number holds steady, here’s how a retiree with $500,000 would calculate the second year’s monthly spending amount. 

• $20,000 x 1.024 = $20,480

In year two, the retiree adhering to the 4% rule with no variants would have $20,480, which leaves $1,706.67 per month. With Social Security, that’s 3,656.94.

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