Here's What Life Will Look Like if You Retire With $500,000 in the Bank

One of the most important concepts when planning for retirement is that it isn't necessarily about how much money you have in savings -- it's how much income you can create after you retire. Think of it this way -- if you have Social Security, pensions, and rental properties that pay you $100,000 per year combined, you could have a very nice lifestyle in retirement regardless of how much you have in the bank.

Having said that, retirement savings can certainly be used to create an income stream. While there's no perfect rule, one popular guideline says you can withdraw 4% of your savings during your first year of retirement and give yourself cost-of-living increases in subsequent years, without worrying much about running out of money.

So, with a $500,000 nest egg, this means you would be able to sustainably create a $20,000 income stream in retirement. But will this be enough?

Consider your other sources of income

While $20,000 per year might not sound like a ton of income to collect from your investments, your savings isn't likely to be the only form of income you have. At a minimum, virtually all retired workers collect Social Security benefits, and as of August 2023, the average retired worker's Social Security benefit is $1,792.37 per month, or approximately $21,500 per year. If you collect this -- and especially if you're married and both spouses get a monthly benefit -- it could be enough to live on if you have $500,000 saved.

There are also other potential income sources, such as pensions, annuities, and rental income. But the point is to add all of your income sources together to get the full picture.

Many retirement planners say you'll need about 80% of your pre-retirement income to sustain your lifestyle after you retire. And while this can certainly vary based on your unique situation, it can help you assess where you stand.

Other things to consider

Now that you've considered your retirement income, there are some other things to factor into the equation. Assets are a big one. It's entirely possible to retire comfortably with very little money in savings if you own a portfolio of rental properties, just to name one possibility. As a personal example, my wife and I own a vacation home that we rent out to others when we aren't there, and we plan to eventually sell it when we're ready to retire.

It's also important to take your debt situation into account. For example, many people make it a priority to pay off their mortgage before they retire, and a retirement without a mortgage payment can require much less income.

Location is also a big factor. In other words, a $500,000 retirement nest egg in rural South Carolina (where I live) is completely different from a $500,000 nest egg in Manhattan. And on a similar note, expenses in general are a big consideration. Are you planning to keep your current home (and all the bills that come with it), or do you plan to downsize? Do you plan to travel extensively or pursue any costly hobbies in retirement? Factors like this should certainly play a role when calculating your retirement income needs.

Is $500,000 enough money to retire on?

The short answer is that it depends on your retirement lifestyle expectations, as well as your other sources of income, assets, and overall financial situation.

The bottom line is that every situation is different, so there is no one-size-fits-all amount of money that is "enough" to retire on. But you can use the concepts discussed here to determine if $500,000 is enough for you to retire comfortably, and if it isn't, how much you'll need to save and invest to get to where you want to be.