Figuring out how much money you need to retire isn’t easy. Every person’s situation is unique, and they each have their own goals and preferences based on their ideal lifestyle. All of which impacts how much retirement will cost. While many experts consider $1 million the minimum a person would need. But, since most people want to retire at a reasonable age, many people wonder if it’s possible to retire on half a million dollars instead. If you are in the latter category. Here’s what you need to know.
Is It Possible to Retire on Half a Million Dollars?
The average senior citizen in the United States spends about $49,000 a year. That breaks down to approximately $4,083 a month. Considering that the average Social Security payment is $1,503. That would leave $2,580 a month (or $30,960 a year) that would need to be covered by retirement account withdrawals, which is far more than a half a million dollar account could reasonably provide.
However, not everyone will need to spend that much. If you can reduce your expenses. Then $500,000 in retirement savings could be enough to sustain you for 20 years.
Even if your retirement account was earning no interest, you could withdrawal $25,000 a year for 20 years before you ran out of money. Suggesting you brought in the average Social Security payment, you’d have about $3,586 a month in income. For some retirees, that could be enough.
As a result, yes, it is possible to retire on half a million dollars. You just need to reduce your expenses to the point that a $500,000 retirement account and any Social Security benefits provide you with enough income.
How to Retire on Half a Million Dollars
If you want to retire on half a million dollars, getting a handle on your expenses is a must. One way to get started is to create a retirement budget. This allows you to see how you can allocate your income, based on known obligations and estimated costs.
Begin by reviewing any known expenses. For example, this could include rent or mortgage payments, utility costs, and similar recurring household-related obligations if you don’t intend to move. If you are thinking about relocating to a lower-cost area, you can do some research to identify average costs in that region.
Additionally, consider any debts that you’ll still have when you retire. Then, make sure you have room for some emergency savings, as well as potentially setting money aside for certain financial goals. For instance, if you may need to replace a vehicle during retirement, it may be best to place cash in a savings account that can be used for that expense, allowing you to avoid acquiring a new debt.
Rising Medical Costs
Finally, take rising medical costs into account. Precisely how much you may need to spend will depend on the health benefits you have available, existing medical conditions, and similar factors. However, since most retirees only see their healthcare needs increase, it’s an important line item to review.
Once you’ve created an initial budget, you can see if any aspects need an adjustment to make retiring on half a million dollars plausible. For example, you may want to pay off debts before you retire, or move to a cheaper region to reduce your living expenses.
Further, you can consider other financial moves. If possible, you may wish to delay accessing Social Security benefits until age 70. By doing so, you can receive a larger monthly payment. Plus, if you continue working until that time, you can bolster your retirement accounts, accrue more in savings, and reduce more debt.
Ultimately, retiring on $500,000 may not be the easiest thing to do, but it is technically possible. Just make sure to plan appropriately, allowing you to ensure that your needs are covered with at that income level.
Can you think of any other tips that can help someone retire on half a million dollars? Share your thoughts in the comments below.
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