Sailing, traveling, golfing, spending time with family—the possibilities are endless once your days are no longer devoted to your career. Unfortunately, there is a caveat; without the right financial strategy in place, you may not have the retirement income you need for the lifestyle you want once you leave the workforce.
While Social Security still offers basic income for retirees, it’s typically just enough to cover the bare minimum. In 2021, the maximum benefit for those who meet strict eligibility criteria is $3,895 per month. The average benefit is just $1,543 a month. Without additional income, certain activities are simply out of reach.
So, how much is enough? Can you retire at 70 with $500k? If not, how much will you need to retire at 70?
How Much Income Can $500k Generate In Retirement?
It’s impossible to estimate precisely how much income $500k will generate in retirement because certain factors can’t be predicted. For example, how your portfolio is structured makes a big difference to your income, as do your specific investments. Stocks that pay dividends and high-growth securities offer more in the way of income, but they carry a higher risk than options like bonds and cash.
Ideally, even when you start taking distributions from your portfolio, the remaining principal will continue to generate returns. However, setting that aside, $500k can generate roughly $20k per year, assuming average returns, if you follow the 4 percent rule.
The 4 percent rule is a standard recommendation that retirees withdraw no more than 4 percent of their assets each year. The goal is to stretch your savings so that you don’t outlive your income. At the age of 70, the combination of $20k per year ($1,667/month) plus Social Security may be enough for your retirement, depending on your lifestyle.
How Many Years Will $500k Last In Retirement?
If your savings total $500k, and you realize average returns and follow the 4 percent rule, you can expect to have $20k per year for 30 years. That’s fine if you retire at 70, as you aren’t likely to outlive your savings. It is a greater concern if you choose to retire early—especially if your retirement plans include expenses like traveling the world.
The good news is that you have options to stretch your savings if your primary goal is to escape traditional employment. For example, you can choose to make your home in an area with a low cost of living.
Some retirees have gone all the way to South America, where they can enjoy a comfortable lifestyle on very little income.
So, Can You Retire Early On $500k?
Theoretically, you can retire early on $500k, but it’s a risky plan if you haven’t created a long-term strategy. That amount will generate a very limited income for roughly 30 years—and that’s assuming you don’t run into unexpected expenses.
The most likely cause of disruption to your financial plans is a medical issue, whether an accident, an acute illness, or a more complicated disease. Once you leave the workforce, you lose access to employer-subsidized medical insurance, and you aren’t usually eligible for Medicare before 65.
Surgical repair of a broken leg runs between $17,000 and $35,000. If you develop diabetes, you can expect your average health-related costs to come in around $17,000 per year. Cancer treatments are exceptionally expensive, starting at $150,000 for a relatively simple treatment plan, and a one-day stay at the hospital for any reason is likely to cost at least $2,500.
In short, retiring early on $500k is a high-risk decision, even if you are in good health right now. A single accident or illness can wipe you out financially, devastating your retirement plans.
What Is A Good Monthly Income For Retirement?
Calculating a “good” monthly income for retirement begins by looking at your expenses—those you have today and those you expect to have after retirement. Generally, you should aim for a retirement income of at least 80% of your current income to maintain a similar lifestyle.
While there are ways to bring your expenses down further than 80% of your current income, certain items are non-negotiable. For example, you will need some sort of housing, and food is a must. You will likely have clothing and transportation requirements as well. You may wish to explore options for medical coverage—perhaps an individual plan through the Affordable Care Act—to protect against unexpected healthcare expenses.
Don’t underestimate the amount you will need to maintain the lifestyle you want. Even if you are exceptionally careful with money, you have to prepare for the unexpected. Once you have put together a reasonable monthly budget, you will have a better sense of what a good monthly income for retirement looks like. From there, determine how much you must have in total savings to see whether you are ready to retire.
What Is A Good Amount Of Money For Retirement?
You can build out an estimate of what a “good” amount of money for retirement looks like once you have an idea of the monthly income you will need to support your lifestyle. As you go through this exercise, one of the key strategies is to overestimate how long you will live to ensure you don’t outlast your savings.
If you can achieve the lifestyle you want on $5,000 per month or $60,000 per year, excluding social security income, the formula for how much you need to save looks like this:
- Annual Retirement Income/0.04 = Total Amount of Savings Required
- $60,000/0.04 = $1.5 million
This assumes you will be retired for 30 years. The total amount of savings required increases for each year over the estimated 30.
How Much Do I Need To Retire At 70?
The amount you need to retire at 70 depends almost entirely on your expenses. If you plan to move in with family members, you will need fewer savings than you might if your plans include maintaining your own home, traveling, and entertainment.
It’s always best to overestimate the amount you will need. With that in mind, begin by calculating 80 percent of your current income. Then, subtract the amount you expect to receive from Social Security (personalized estimates available online from the Social Security Administration), and divide by 0.04.
The resulting amount assumes you will live to be 100, giving you a 90 percent chance of having enough assets to see you through the rest of your life.
The Bottom Line: Can I Retire At 70 With $500k?
The bottom line is that you can retire at 70 with $500k if you are comfortable with the resulting lifestyle. Your savings will provide you with approximately $20k per year, and the average Social Security benefit will add another $18k or so.
The bad news is that economic conditions like inflation are likely to reduce the buying power of those funds. The good news is that you will have the opportunity to participate in Medicare which reduces the risk of astronomical medical bills.
Certain types of housing may take your low fixed income into consideration, or you may choose to live with family or relocate to a less expensive part of the world. If you remain in good health and are careful with your money, $500k may be enough to see you through your retirement years.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.