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Determine if you have enough

To decide if you can retire on a nest egg of $500,000, you’ll need to determine how much you plan to spend each month in retirement. Calculate your current spending and how you expect it to change when you retire. For instance, you could reduce your housing costs if you pay off your mortgage, but your medical costs could be higher if you have health problems.

A popular retirement guideline that may help you estimate how much you can spend in retirement with your current nest egg is the 4% rule. According to this rule, you should plan to withdraw 4% of your savings in the first year of retirement and adjust that amount for inflation every year after. For example, If you have $500,000 in savings, you would withdraw $20,000 in your first year and then, if inflation is 2%, withdraw $20,400 the next year.

For context, the average annual expenditure for American households of those 65 and older was $57,818 in 2022.

The 4% rule assumes you retire with a balanced portfolio of 50% stocks and 50% bonds. It also includes taxes or investment fees in your withdrawal amount. Financial adviser William Bengen, who came up with this rule, said using this formula should allow your savings to last you 30 years.

However, personal finance guru Suze Orman has called the 4% rule “dangerous” and suggests retirees aim to spend 3% of their savings each year instead.

Next, you’ll need to determine your total retirement income. Most Americans will be entitled to a monthly Social Security benefit, which averages $1,907 (as of January 2024). This equates to about $22,900 per year. You can estimate your own benefits by setting up a my Social Security account. You may also consider any other sources of income you'll have, like annuities and pensions.

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Consider your options

What if the combination of retirement savings and Social Security is not enough to meet your expected expenses? Some options include retiring later, reducing your expenses, looking for other sources of income and possibly altering your investment strategy if you're willing to take on more risk.

When you retire is an important factor. It’s often assumed that your savings will last about 30 years (using the 4% rule), but this can vary depending on other factors like the returns you get from your portfolio, and you could have unexpected expenses that force you to withdraw more than 4% in a year.

In general, the later you retire, the more flexibility you'll have and the better your chances the money will last. Retiring later can also give you time to build up more savings and possibly increase your monthly Social Security benefit.

To reduce expenses, pay off your debts before you retire, consider downsizing your home and explore the possibility of relocating to a different city or even a different country with a lower cost of living.

Other sources of income that you might consider include a part-time job or rental income from renting out part of your home. Consider that if you make even $500 a month at a part-time job, it’s equivalent to withdrawing 4% from an additional $150,000 of savings. You might also want to consider cashing in insurance policies that have a cash value or borrowing against your home equity.

You’ll want to consult a financial adviser to ensure your portfolio is invested properly for your needs and risk tolerance, and that you withdraw in a way that minimizes taxes. A financial adviser could help you devise a strategy to comfortably retire with $500,000, or even less.

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The road to retirement may seem long, but with WiserAdvisor, you can find a trusted partner to guide you every step of the way

WiserAdvisor matches you with vetted financial advisors that offer personalized advice to help you to make the right choices, invest wisely, and secure the retirement you've always dreamed of. Start planning early, and get your retirement mapped out today.

About the Author

Vawn Himmelsbach

Vawn Himmelsbach

Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.

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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.