Heading into retirement at age 70 with just $500,000 in savings may have you feeling anxious. For many, a half-million dollars isn’t quite enough to fund 20 or even 30 years in retirement.
But know that you’re not alone in feeling behind on your retirement nest egg.
“The truth is that the millions of Americans have under-saved for retirement,” says Douglas Ornstein, a financial advisor at Integrated Solutions at TIAA Wealth Management in Charlotte, North Carolina. “Based on median retirement savings by age, most Americans don’t have enough put away for retirement to replace 70% (to) 80% of their pre-retirement income.”
“This is a challenge with people living longer and wanting or needing to leave the workforce in their mid-60s,” Ornstein adds. “That can be decades without earning income and therefore needing savings and Social Security to cover the costs of living.”
Even if it doesn’t feel like it will be enough, you can follow these tips to retire at age 70 with $500,000 in savings.
[Related:Can I Retire at 50 With $2 Million?]
Calculate Your Retirement Income and Outflows
Job No. 1 is to calculate whether retiring with $500,000 is feasible for you.
Professional money managers often advise using the 4% rule in estimating how much money you’ll need for 20 or 30 years of retirement. Basically, the rule recommends taking 4% of your savings each year in retirement, adjusted for inflation.
Using the 4% rule with $500,000 in savings, a 70-year-old retiree can count on receiving $20,000 in the first year, which is not exactly a princely sum. Many 70-year-olds won’t live for 30 years in retirement, however, so you may consider taking out a little more each year.
For many, living on $20,000 alone is likely not enough to retire at any age, given the high cost of health care, housing, and monthly utility and grocery bills. If Social Security payments and a part-time job are added to the mix, retiring at age 70 with $500,000 is more feasible.
[READ: How Much Does a $1 Million Annuity Pay Annually?]
Understand Your Retirement Picture
Even with a $500,000 nest egg, retirement needs are different for each person depending on the lifestyle they have been accustomed to.
“It’s not a cookie-cutter approach,” says Deanna LaRue, a certified financial planner at Timewise Financial LLC in Woodstock, Georgia. “When I work with my clients to prepare for retirement, we recommend five key areas of focus.” Those areas are insurance planning, cash flow analysis, retirement lifestyle planning, estate planning and tax management.
Assume that a married couple, both age 70, have saved $500,000 and are ready to pull the trigger on retirement. In that scenario, LaRue advises the following route to plan for retirement:
1. Review your expenses. “Be sure not to underestimate,” LaRue says. “Don’t forget expenses such as gifts, clothing, gas, nails, golf, eating out and things like that. You’ll also want to be sure you’re prepared for health expenses — premiums for Medicare, prescription costs, deductibles and out-of-pocket amounts.
2. Understand your income. Understand what money you will bring in from Social Security and retirement account withdrawals. For this analysis, assume that a couple’s Social Security income will provide $35,000 each for a total of $70,000.
When it comes to your investments, the outcome depends on various factors, including the risk tied to your investments, the sequence of returns, inflation and your life expectancy. Assuming you took all of this into consideration and felt that 4% is a good target, your expected income would be $20,000 ($500,000 X 0.04%) in the first year.
In this scenario, for a couple retiring with $500,000, total first-year income equals $90,000 ($20,000 from savings + $70,000 from Social Security).
If after viewing your income and expenses you don’t feel you are meeting your goals, there are four ways you can change this scenario, aside from a possible inheritance, LaRue says. Those are to push back your retirement age, work part-time for a few years, save more cash or lower your expenses, including possibly downsizing your home.
Handle Health Care Costs in Advance
Having $500,000 on hand gives you a good head start on covering one of the most important retirement financial costs: health care.
An average 65-year-old retired couple in 2023 could need to save as much as $315,000 to cover the cost of health care in retirement, according to the Fidelity Retiree Health Care Cost Estimate.
Retirees with $500,000 can take some of that money — half is ideal but even $100,000 will help — and set it aside to cover health care costs.
Also, be careful with how you allocate your retirement funds.
“Depending on your age, your investment mix should take into account the timeline of when you will need access to that cash and when you begin Medicare coverage,” says Jason Van Den Brand, CEO and co-founder of Wellahead, a financial services company serving the U.S. military veterans community. “For example, if you are turning 70 in a few years, putting that money into the stock market would not be a safe plan.”
[Read: How Much to Put Into a Health Savings Account]
Consider a Part-Time Job or Generating Passive Income
The decision to work part time depends on the retiree and how much time and energy they have.
“The good news is that with the new gig economy, it’s easier to get odd jobs outside of working hours such as driving for Uber or filling out paid online surveys,” Van Den Brand says. People may also choose to rent out their homes via sites such as Airbnb.
Note that passive income streams can be built “but not without using a decent portion of the $500,000 to set it all up,” Van Den Brand adds.
Be Creative With Your Income and Investments
One good way to add to your $500,000 nest egg before you retire is to max out employer contributions to tax-advantaged retirement accounts such as 401(k)s and SIMPLE IRAs.
If you’re still working and have some time left before retirement, invest heavily in stocks for growth while you have time to ride out volatility.
“At about 60 or 65 years old, shift to more conservative investments five (to) 10 years from retirement to preserve capital,” says Andrew Lokenauth, a former Wall Street executive and founder of TheFinanceNewsletter.com, an investment advisory platform. “Also make sure to save diligently and invest all windfalls and inheritance.”
“If push comes to shove, downsize your home and pay off debts before retiring to reduce expenses and help make that $500,000 last,” he adds.
Consider Social Security Timing
Claiming Social Security is a much more complicated issue when you’re weighing a retirement with limited funds. If you’ve already reached age 70 and haven’t taken Social Security, there’s no benefit to waiting to take your Social Security benefits. That’s because those who begin taking Social Security at age 62 receive the minimum payout under Social Security rules, while those who wait until age 70 receive the highest payment rate.
If you’re approaching Social Security age and are planning to retire at age 70, taking Social Security at any age between 62 and 70 is a personal choice, based on your specific financial needs. In general, though, the longer you wait to take Social Security, the bigger your monthly check will be. If you can wait until age 70 and with $500,000 saved for retirement, taking Social Security payments at the max-out range can optimize your Social Security payout and augment your total retirement income.
Monitor Your Progress
Take time at least once per year to review everything retirement-related as you move forward.
“Did you stick to your expense budget, or did you make that extra $10,000 withdrawal to help one of your kids with their expenses,” LaRue asks. “Did you pay off your mortgage, thus reducing your expenses? Did any major health concerns arise that may put stress on your budget and/or family?”
Additionally, make sure to check your investments. “Assess if you’re able to take on more risk than you can really stomach and spend some time thinking if you should adjust to a safer portfolio,” she notes.
It’s also advisable to review your life insurance policies starting at age 70 and continue doing so regularly. “Many times, we get life insurance and throw the policy in our file cabinet never to review again,” LaRue says. “Is it a term policy, whole life or universal life? Who will be dependent on your Social Security income loss if something were to happen to you?”
Lastly, review your long-term-care insurance policy if you have one. “If you have chosen to self-insure, then you will want to be prepared for future expenses and/or Medicaid planning,” LaRue adds.
More from U.S. News
If I Buy a $500K Annuity, What Will It Pay Annually?
How Can I Earn $100, $200 or $500 per Month in Guaranteed Income in Retirement?
Can I Retire at Age 70 With $500K Saved? originally appeared on usnews.com
