What $500K in Retirement Savings Plus Social Security Looks Like in Monthly Spending
Written by
Jacob Wade
Edited by
Jenna Klaverweiden
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Yes, you can retire with less than $1 million. But it takes some strategic planning, maximizing Social Security and sticking to a reasonable monthly retirement budget.
For those who are feeling behind in retirement savings, here’s a breakdown of exactly how much you can spend in retirement even if you have only $500,000 invested.
Also see how much savings you need to retire in every state.
How $500K Translates Into Monthly Retirement Spending
Once you choose to retire, you’ll need to come up with a drawdown strategy to stretch your dollars for the duration of your retirement. The goal is to withdraw enough money to meet your needs while avoiding depleting your portfolio too soon.
The most popular withdrawal strategy used by financial planners is called the “4% rule,” and it involves withdrawing just 4% of your retirement portfolio per year — adjusting for inflation. It’s a guideline used to help retirees figure out a safe withdrawal rate for their money.
If you have $500,000 saved for retirement, this means you can withdraw about $20,000 from your investments in the first year of retirement, and adjust the number up for inflation each year after that. To break it down monthly, this means you can withdraw only about $1,667 per month from your investments.
If you’re thinking, “There’s no way I can live on $1,667 per month in retirement,” you’re probably right. While $500,000 is a decent nest egg, it may not nearly be enough to live on in your golden years.
Most likely, you’ll want to hold off retiring until you can start withdrawing Social Security, or if you have access to other sources of income, such as rental real estate or a pension plan.
For example, if you need $4,500 per month to live on, only $1,667 can come from your investment accounts. But if you wait until age 67 to retire and receive the average Social Security payout of about $2,000 per month and have a small pension of around $1,200 per month, this gives you a little over $4,800 per month to live on.
If you need more money to retire on or don’t have access to a pension, you may need to consider part-time work to cover the gap or a higher withdrawal rate from your $500,000 portfolio. Just know that a higher withdrawal rate can increase your chances of running out of money before 30 years.
What a Monthly Budget Might Look Like
Let’s say you withdraw $1,667 from your retirement accounts each year and receive $2,000 from Social Security and your spouse gets another $1,000 in Social Security as well (50% of your benefit even if they don’t qualify for Social Security). This gives you around $4,600 per month to live on.
Using the 75/15/10 budget rule, that means 75%, or $3,450, could go toward your monthly expenses. This will be much more doable if you have a paid-off home, which should be a top priority before retirement.
Then, 15% of your budget (or around $690) is supposed to go toward future investments. But since you’re in retirement, you can put these extra funds toward your monthly expenses instead. So you really have around $4,140 to live on.
Lastly, 10%, or $460, could go toward short-term savings. This can include things like upcoming travel, Christmas gifts, car maintenance and other irregular expenses that come up throughout the year.
How Far Does $500K Go?
Unfortunately, $500,000 doesn’t go as far as it used to for retirees. With rampant inflation, high interest rates on homes and cars, and property taxes on even a paid-off home continuing to rise, you’ll be hard-pressed to live on $500,000 alone in retirement.
But if you combine your portfolio with Social Security income and a paid-off home, you can still have a modest retirement income that is completely achievable. If you’re not sure how much you can spend in retirement, it can be a good idea to meet with a licensed financial planner to go over your options.
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