Most people broadly accept that the retirement age is 65, as this has long been the traditional age required for Social Security benefits. However, it has gone up to 66 or 67 lately, depending on your date of birth. However, many people want to retire earlier than that, so they have plenty of opportunities to travel or enjoy the life they want without worrying about full-time work. Retiring at age 60 strikes a good balance between retiring early, but still giving yourself plenty of time to accumulate enough savings to live comfortably in retirement. However, many have saved less than they would like when they retire. When planning for your retirement, you can work with a financial advisor to help you manage your investments.
Is $500,000 enough to retire at age 60?
The amount of money you will need to retire, whatever your age, will depend entirely on a number of factors unique to your personal circumstances. The answer to whether $500,000 is enough for you retire at 60 might be completely different from someone else looking to do something similar. Generally speaking, you can retire at age 60 with $500,000, but you may not like the amount of your income or it may not be enough for your needs. However, some people can retire with less.
Here are three things to consider when determining if you have enough money to retire:
-
Desired lifestyle: The lifestyle you want in retirement will largely determine whether it’s enough money for you or not. Do you want to travel a lot? Are you planning to live in a foreign country? The answers to these questions will all provide different requirements for how much you will need in retirement.
-
Living situation: Do you own a home that is paid off where you plan to live, or are you going to be lease throughout retirement? The costs associated with these two things can create very different financial needs.
-
Your healthcare plan: At age 60, you will not yet be entitled to Health Insurance so you’ll need a different plan to cover your healthcare costs, and they won’t necessarily be cheap. If your medical history is not as strong as others, these costs can increase even more.
There are obviously more things you can consider that could cause your retirement number to fluctuate. But these are the three biggest expenses that are likely to affect everyone in varying degrees.
How long will $500,000 last in retirement?
How long it takes for your money to run out will again depend on your lifestyle and personal expenses. The lifespan of money also decreases significantly if you have a spouse who lives on the same amount of funds. The amount you withdraw each year will also change the number of years the money lasts a bit.
For example, the 4% rule would say that you can safely withdraw $20,000 from your funds each year and $500,000 will last you at least 30 years. That’s not a lot of money for one person, let alone two. The average person retiring in 2020 spent just over $45,000 for the year, according to the Bureau of Labor Statistics (BLS). So, for the money to last throughout your lifespan, you’ll likely have to live a frugal life without a lot of extra spending.
The duration will also depend on how you invest your funds during your retirement years. If you’re only living on the $500,000 of your savings with no investment in those years, the funds probably won’t last more than 10 or 12 years, depending on where you live. However, investing it in the right places can make it last much longer.
Where you could invest your money for longevity
If you want to stretch your retirement money, you’ll probably want to think about how you can get more income from your funds or what types of investments offer the highest returns over time. This is where becoming a more educated self-directed investor or working with a financial advisor could be extremely helpful.
Some examples of investments that could help you with this are stocks, bonds, real estate investment trusts (REITs)) or annuities. Bonds are the most stable, but also offer the lowest potential return compared to similar investments. Stocks and REITs offer long-term stability, but can fluctuate in the short term, which could really hurt you in retirement. However, both can offer good returns during retirement. Some stocks may also pay dividends, which could help you earn additional income from your investments.
A potential investment if you are looking for guaranteed income with your $500,000 in retirement could be an annuity. Annuities are basically contracts you sign with an insurance company where you pay a premium in exchange for guaranteed payments at a later date. You can also use an immediate annuity that starts right away but is likely to provide less return than a longer-term contract.
Invest in an annuity
There are many types of annuities, such as fixed or variable annuities. The fixed annuity guarantees the repayment of the capital you have paid with a small amount of interest. Your payments do not change for the duration of your contract. With a variable annuity, your capital is still guaranteed, but the returns you receive are not. These carry a higher risk threshold, but may offer a better return during retirement.
You can also get lifetime income rider which guarantees you income throughout your life and not just for a specific period of time. It will cost more on the monthly premium, however. This may be the best way to stretch your $500,000 if you find an annuity is right for you.
Annuities have many advantages and disadvantages, such as how they are taxed and when you can withdraw the capital. But ultimately, it’s something worth considering if you have less income than you would like in retirement. Purchasing an annuity can help many people retire at age 60 with just $500,000 without having to sacrifice their normal lifestyle.
Other Factors to Consider When Saving for Retirement
There are so many things to consider if you are thinking about take early retirement, however, that go beyond the source of your income. Once you retire, you’ll likely have to pay for a number of things that you didn’t before, like the full cost of your health insurance. Here is a list of four things that can change the amount of money you need in retirement, which you should consider before taking the plunge:
-
Inflation: The cost of retiring at age 60 in 10 years will be higher than the cost of retiring at age 60 today. It’s important to make sure you take this into account when running your own numbers.
-
Where you plan to retire: Retiring in New York will be very different from retiring in North Dakota. Costs are going to vary widely, so the cost of living where you plan to be will have a huge impact on how much money you need.
-
Insurance: You will have to pay for health insurance since you will not yet be eligible for Medicare, as stated earlier. You need a plan for where this insurance will come from and how much it will cost.
-
Part-time work: Many people work part-time in retirement, especially if they retire early. This not only provides you with additional income, reducing how far your $500,000 has to go, but it can also give you an interesting goal during the week.
Conclusion
All in all, retiring at age 60 is doable with $500,000, but it may not be feasible for you. It really depends on your personal life situation and what your potential expenses will be. When you can calculate this, you will know how to invest your funds to ensure you have enough income in retirement to live a sustainable life that you can personally enjoy.
Tips for saving for retirement
-
Working to earn money for retirement takes enough time that managing your retirement plans at the same time can be difficult. Consider using a Financial Advisor who can help you create a retirement plan. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
-
You can also use The SmartAsset Retirement Calculator to help you estimate how much you may need to save to live the retirement life you want.
Photo credit: ©iStock.com/svetikd, ©iStock.com/Olelole, ©iStock.com/monkeybusinessimages
The post office Can you retire at 60 with $500,000? appeared first on SmartAsset Blog.