Some people will tell you it takes a few million dollars to retire comfortably. But that's not necessarily the case.
There are plenty of people who manage to do just fine with a few hundred thousand dollars saved. And on the flipside, it's possible to retire with several million dollars and find yourself scrambling to cover your bills.
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Last year, year, Vanguard reported that the median retirement plan balance among Americans 65 and over was $95,425. So if you're looking at retiring with $500,000 in your IRA or 401(k), you may be looking at roughly five times the amount of savings as some of your peers.
But is $500,000 enough for a comfortable retirement? Let's find out.
How much annual income can a $500,000 nest egg provide?
To see what sort of annual paycheck a $500,000 IRA or 401(k) plan might provide, we need to land on a reasonable withdrawal rate. Financial experts have long sworn by the 4% rule, so it may be a good benchmark to use here.
If we apply a 4% withdrawal rate to $500,000, we get an annual income of $20,000, not accounting for inflation-related adjustments. But chances are, you'll have at least some Social Security on top of that.
The Social Security Administration puts the average monthly retirement benefit today at $2,071. So that's roughly another $25,000 on top of $20,000 from savings for a total annual income of about $45,000.
Whether that's enough for you depends on you and you alone. A $45,000 income could potentially support a frugal lifestyle. But it may not support a lifestyle where you hang onto a 3,000-square-foot home in an area with expensive property taxes. So you'll need to be honest with yourself about your spending needs.
How to make up for a smaller nest egg
Although a $500,000 nest egg isn't small compared to what some people have saved, it may not buy you the retirement you want. In that case, it pays to try to boost your senior income. You can so by:
- Delaying your Social Security benefits until age 70 for larger monthly checks
- Working part-time or consulting in your former field
- Renting out a portion of your home, like a finished basement or garage, if you're keeping a larger house
Whether $500,000 buys a comfortable retirement depends on your specific needs. You're not necessarily in bad shape if you find yourself nearing the end of your career with $500,000 saved. But there's also nothing wrong with exploring ways to boost your income so you have even more wiggle room.
