One of the biggest worries associated with retirement planning is making sure you have enough money tucked away. While some people might aim to save $1 million or even $2 million for the future, your goal might be to save $500,000 or $600,000 instead. But just how long will $600,000 last in retirement? And is it enough? Asking those kinds of questions can help you shape your retirement savings strategy. Something else that can help you shape your retirement savings is working with a financial advisor.
Can You Retire With $600,000?
It’s possible to retire with $600,000 in savings with careful planning, but it’s important to consider how long your money will last. Whether you can successfully retire with $600,000 can depend on a number of factors, including:
-
Your desired retirement age
-
Estimated retirement budget
-
Expected longevity
-
Total savings and income
The earlier you retire, the longer your retirement savings has to last, especially if you have a longer life expectancy. And the type of lifestyle you choose can influence how far $600,000 will go in retirement. Things like inflation and market volatility can also affect your overall retirement outcomes. Health can play a part as well as healthcare costs tend to increase as you get older.
Can I Retire at 62 With $600,000?
Retiring at 62 may be your goal, but can you do it with $600,000 in savings? If you plan to downsize your home, live a minimalist lifestyle and supplement your retirement savings with a pension plan, annuity or Social Security benefits then the answer may be yes.
On the other hand, retiring at 62 with $600,000 may not be realistic if you plan to spend more to fund your lifestyle or you don’t have alternative sources of income other than savings. While Social Security benefits can provide income, taking those benefits at 62 will reduce the amount you receive. You’ll need to wait until full retirement age, typically 66 or 67, to get your full benefit amount. And you can increase your benefits if you’re able to hold out until age 70.
It’s also important to consider overall health and how that can impact your retirement plans. If you manage to stay healthy and never need long-term care then $600,000 could be enough to sustain you in retirement. On the other hand, if you need long-term care in a nursing facility that could take a large bite out of your savings.
Medicare doesn’t cover extended nursing home care. Medicaid can but you may need to spend down the majority of your assets first to qualify. Setting up a Medicaid asset protection trust can allow you to get around this requirement, which may be something worth discussing with a financial advisor.
How Long Will $600,000 Last in Retirement?
How long $600,000 will last in retirement can hinge largely on your withdrawal rate. A common rule of thumb for retirement savings withdrawals is the 4% rule. This rule suggests withdrawing 4% of your retirement savings per year to live on. Hypothetically, a retiree who expects to spend 30 years in retirement should be able to safely withdraw 4% of their savings annually without running out of money.
So let’s apply that to a real-life example. Say that you plan to retire at 62 with $600,000 saved. You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement. In fact, by age 92 you’d still have over $116,000 in savings.
Now, assume that inflation increases to 4%. In that scenario, you’d run out of money by age 90. This is important to understand because rising prices can reduce your purchasing power over time. This is where it becomes helpful to consider other sources of income for retirement, such as Social Security benefits or a pension if you have one.
Again, Social Security benefits can begin as early as age 62, but you’ll get a lower amount than you would if you waited until full retirement age. But if you’re retiring with $600,000 in savings, taking benefits earlier could make sense if you’re worried about running out of money based on your anticipated life expectancy. Using a Social Security retirement calculator can help you get a better idea of how much money you’re likely to receive.
How to Retire With $600,000
If you’re interested in retiring with $600,000 in savings, planning early is important. You’ll need to consider what age you plan to retire, what kind of lifestyle you anticipate having in retirement and what your total savings and income picture will look like. That includes planning for future income needs for your spouse as well if you’re married.
The earlier you begin saving, the easier it may be to reach your $600,000 goal. So if you have a 401(k) at work, for instance, you may want to focus on maxing that account out first. At the very least, it’s important to save enough to qualify for the full employer match if there is one. If you don’t have a 401(k), you can still save in an Individual Retirement Account.
A traditional IRA can offer tax-deductible contributions, with taxes on earnings deferred until you retire. A Roth IRA offers no deduction but qualified withdrawals are tax-free. A SEP or SIMPLE IRA could make sense if you’re self-employed. These accounts have higher annual contribution limits than traditional or Roth IRAs, so you can save more for the future. In terms of how withdrawals are taxed, they follow the same tax rules as traditional IRAs.
You may also consider creating an additional stream of income for yourself with an annuity. An annuity is an insurance contract in which you pay a premium in exchange for receiving payments back later. There are different types of annuity products to choose from but they can all create guaranteed income. If you’re married, you may be able to carry those benefits over to your spouse when you pass away.
Talking to a financial advisor a can help you decide if an annuity might be right for you. Your advisor can also discuss other strategies that can help you reach your goal of saving $600,000 for retirement. For example, they can offer advice on how to best allocate your assets to generate your desired returns, both before and during retirement. They can also help you choose investments for maximum tax and cost-efficiency.
The Bottom Line
How long will $600,000 last in retirement? The answer can be different for everyone. Creating a retirement budget can give you an idea of how much you’re likely to spend and what you’ll need to draw from your savings each year. From there, you can decide if $600,000 is a realistic goal or whether you should be aiming to save more for retirement.
Retirement Planning Tips
-
Consider talking to a financial advisor about what retiring on $600,000 might look like for you and whether that’s something that’s doable. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
-
Use SmartAsset’s no-cost retirement calculator so get a good idea of the progress you’re making in building a retirement nest egg.
-
In addition to tax-advantaged accounts, such as a 401(k) or IRA, you might also consider opening a taxable brokerage account. A brokerage account can offer more flexibility in terms of the types of securities you can trade. This can help increase diversification and give you an additional source of savings. And many brokerages now offer $0 commission fee trading, which can save you money.
Photo credit: ©iStock.com/whyframestudio, ©iStock.com/olm26250, ©iStock.com/tumsasedgars
The post How Long Will $600,000 Last in Retirement? appeared first on SmartAsset Blog.
