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1. Figure out how much annual income $500,000 gives you

It’s easy to get overwhelmed when dealing with a big number like $500,000, so it’s important to break down what that might mean in terms of annual retirement income. Financial experts have long advocated using the 4% rule, which has you withdrawing 4% of your savings balance your first year of retirement and then adjusting subsequent withdrawals for inflation.

If we apply this percentage, a $500,000 nest egg allows for $20,000 of annual income initially. That figure will then increase modestly from year to year to account for inflation.

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2. Determine what other income sources you'll be privy to

The savings you bring into retirement may not be the only income you have access to once your career has ended. You may be eligible for a pension through your former employer or get rental income from a property you own.

And don’t forget Social Security. Contrary to rumors, the program is not in danger of going away. And while benefit cuts are a possibility, lawmakers have never let those happen before, so they may be avoidable once again. The typical retired worker today collects about $1,915 a month in Social Security, but you can get an estimate of your anticipated retirement benefit by creating an account on SSA.gov.

3. Estimate your annual retirement expenses

Let’s imagine you’re looking at $23,000 a year in Social Security benefits like the typical retired worker today, plus $20,000 a year from your savings for a total of $43,000. Will that be enough for you to retire without stress? It depends on the type of retirement you want.

As of the first quarter of 2024, Americans aged 65 and over had a median annual income of about $61,000, according to the Bureau of Labor Statistics. Limiting yourself to $43,000 could therefore leave you with a shortfall — unless you intend to live frugally and have minimal needs and expenses. So rather than getting caught up in averages, try to estimate what your annual expenses might amount to.

Of course, there are two big factors you’ll want to account for:

  • Taxes. Unless you have your savings in a Roth IRA or 401(k), your withdrawals will be subject to taxes, as might your Social Security benefits.
  • Health care. In 2023, the typical 65-year-old could expect to spend $157,500 on health care expenses throughout retirement, according to Fidelity. In 2024, the standard monthly cost for Medicare Part B alone is $174.70.

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Are you set with $500,000 for retirement, or should you have more?

Ultimately, you may run the numbers and determine that you’re on track for a stress-free retirement with $500,000 in savings. Or, you may decide that it’ll take a larger savings balance than that to enjoy the lifestyle you want.

The good news is that if you’re 50 years old, you may easily have another decade and a half of earning years ahead of you. And being 50 means that you’re eligible to make catch-up contributions to an IRA or 401(k). So if, after crunching the numbers, you feel that $500,000 won’t be enough to buy you a stress-free retirement, you have plenty of time to boost your nest egg accordingly.

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Maurie Backman Freelance Writer

Maurie Backman is a freelance contributor to Moneywise, who has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.