7 Tips To Retire Comfortably With Just $500K in Savings
One general rule of thumb for how much you may need saved for retirement is a broad target of $1 million. Another is to have 10 times your average salary saved by age 65 and spend no more than 4% of that per year.
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Rules of thumb, though, are not one-size-fits-all. How much you actually need depends on many different factors, including your yearly income, standard of living and what kind of expenses you’ll have when it comes time to retire.
A recent survey by GOBankingRates focused on retirement savings revealed that 94% of respondents currently have $500K or less saved for retirement. And almost half – 48% – think that will be enough.
Another recent survey conducted by TransAmerica Center for Retirement Studies had similar findings, with respondents across four generations of adults estimating they’d need a median of $500K to comfortably retire.
Catherine Collinson, CEO and president of Transamerica Institute and Transamerica Center for Retirement Studies, points out however that when asked how people they’d surveyed estimate what they’ll need for retirement, nearly half (45%) said that they guessed.
“Many people are not formally estimating their retirement savings and retirement income needs,” Collinson said. “Too many people are winging it.”
For a retirement period that spans 20 years (and likely longer), $500K works out to $25K per year. “Half a million sounds like a lot, and one assumes that they would have sources of income such as Social Security. But for an amount of money that has to last for decades, it’s not that much,” Collinson said.
So, if like many people, $500K is your retirement reality, how can you make sure your golden years aren’t tarnished by financial insecurity? Read on for tips from retirement experts.
No Winging It
Unless you have unlimited cash flow, basing your estimated needs on guess work likely won’t lead to a comfortable retirement.
“Develop a formal estimate taking into consideration sources of income, expenses, government benefits, potential health care benefits, whether or not you own your home, and also factors that have garnered a lot of news lately, like interest rates and inflation,” Collinson said.
For help in getting a clear estimate, she suggests checking into planning resources available through your employer, especially if you have a 401(k). You can also reach out to an independent advisor or educate yourself with books and the many free planning tools, articles and resources available online.
Read More: Here’s the Cost To Retire Comfortably in Every State by Age
Develop a Formal Strategy
Just 23% of people surveyed by TransAmerica Center had a formal retirement strategy written down.
“Now is the time to put the pen to the paper to start populating the spreadsheet,” Collinson said. “Start working with the tools and resources available and possibly an advisor through your retirement plan provider.”
That includes coming up with a budget, factoring in Social Security and your expected expenses, and identifying ways of bringing in more income while spending less.
Consider Delaying Social Security
Instead of collecting Social Security as soon as you’re eligible at 62, John McCafferty, director of financial planning at Edelman Financial Engines, advises people to consider postponing your payouts.
That’s because for every year you delay claiming Social Security past your full retirement age (67) up to age 70, you get an 8% increase in your benefit.
If you’re also planning to rely on an investment portfolio for retirement income, McCafferty says, this can help offset concerns about market volatility.
“In my experience, as investors age they tend to like volatility less,” McCafferty said. “When delaying Social Security, you are capturing a higher income benefit. This may allow you to be less dependent upon portfolio income in the future, particularly during market downturns. Your future self may thank you.”
Learn About Medicare
A single 65-year-old person in 2023 should expect to need approximately $157,500 saved for health care costs over a 20-year retirement, according to Fidelity’s Retiree Health Care Cost Estimate. That’s nearly a third of $500K.
Health care is one of retirement’s biggest costs, and more than half (51%) of respondents surveyed by GOBankingRates said that unexpected major health care expenses are one of their financial worries in retirement.
Medicare is available to everyone 65 and older in the US, with different plans that each have their own costs, benefits, and areas of coverage.
Collinson says it’s well worth it to do your research and understand the different parts of Medicare going into retirement in order to make the most strategic and educated plan choice when the time comes.
Pay Off Debt
A priority for workers 50 and over, Collinson says, is often paying off debt.
“The longer you’re retired, the more difficult it’s going to be to pay off debt because retirees are generally living on a fixed income and are even more vulnerable to inflation than the workday population,” she said.
Mortgages, credit cards and other debts may be prioritized depending on their terms and interest rates, she said, and any new high-interest debt should be avoided going into retirement.
Keep Working
To ease your dependence on your retirement portfolio, McCafferty suggests considering a “soft retirement” that still involves some part-time work.
“This creates a longer runway for the portfolio to possibly achieve a higher balance,” he said. “This equates to more income in the future.”
Gradual transitions into retirement have become more popular and common.
“Work and retirement are no longer an all or nothing proposition,” Collinson said. “Many either seek to transition by switching from full time to part time work or by working in a different capacity.”
This also takes planning, as not all employers offer flexible transitions or part-time options. “If it’s available, great. If it’s not available, envision how you might be able to accomplish that transition in different ways,” Collinson said.
Be an Opportunity Detective
From finding new ways to save money and spend less to seeking out fun things to do for free, Collinson advises retirees to become “opportunity detectives.”
“When you are working less, you’ll have time to pursue things that you haven’t had time to do. And to be able to have a clearer vision of what it is that you want and what’s important to you will help prioritize,” Collinson said.
Finding things to enjoy doesn’t have to be expensive — it could just be a regular game night with friends. It’s more about “aligning your values and priorities with the resources available,” she said. “When you put on your glasses with the opportunity lens, it can help you enjoy a retirement on $500K.”
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This article originally appeared on GOBankingRates.com: 7 Tips To Retire Comfortably With Just $500K in Savings
