Americans continue to lag on their retirement savings, and the situation isn’t getting any rosier. This is especially the case for U.S. workers nearing retirement age.
According to a recent study from Prudential, the average 55-year-old worker approaching retirement has a median average savings of $50,000. What’s more, 67% of 55-year-olds surveyed fear they’ll outlive their savings in retirement, given low savings, an unstable Social Security landscape and the lack of a work pension plan.
Fortunately, Americans nearing retirement have some recourse to make up lost ground on savings rates that could help them reach $500,000 or so in retirement savings by age 70.
Take these steps to manage your $500,000 in retirement.
— Develop a plan.
— Do the math.
— Get a job in retirement.
— Generate long-term income.
— Live abroad.
— Manage the risks.
Develop a Plan
Retiring with $500,000 is possible, but you have to be pragmatic about your lifestyle and spending. Create a comprehensive savings and investment strategy, ideally with the help of a trusted financial advisor.
“Start by setting clear retirement goals and creating a budget to track expenses,” says Bryan Cannon, CEO and chief portfolio strategist at Cannon Advisors in Charlotte, North Carolina. “Maximize contributions to tax-advantaged retirement accounts, take advantage of employer matching programs and diversify investments to manage risk.”
Regular and automated contributions and consistent increases in savings as your income grows are key to living on $500,000 in retirement. “Minimize fees, maintain an emergency fund and regularly review and rebalance your investment portfolio,” Cannon says.
Do the Math
Your ability to retire with $500,000 in savings is directly tied to the lifestyle you plan to live and your retirement costs.
“If you’re going to make $500,000 last over more than 25 years, you likely need only to draw down about $20,000 per year, and for most people, that is not enough money,” says Cheryl Evans, finance director at the Milken Institute in Washington. “However, you need to consider other sources of income, so be sure to calculate your Social Security benefits through the Social Security Administration website.”
Estimating your future expenses is also critical in determining whether you can successfully retire with $500,000 in savings.
Get a Job in Retirement
There are several steps you can take to ensure your $500,000 savings lasts longer.
“The most obvious is to take a job bringing in income so that you can draw down less of your retirement funds over time,” Evans says. “For many people, retirement is a time to transition to some vocation that gives them pleasure for which they earn much less money.”
[See: 15 In-Demand Jobs for Seniors.]
Generate Long-Term Income
Another factor to consider is whether you have a lifetime income product.
“Financial firms are now developing more and more products that create in-plan income similar to an annuity embedded in a retirement savings plan,” Evans adds. “This will give you a guaranteed income for life, and I would consider that type of product for part of my $500,000.”
As you calculate income needs, consider the years you want to spend more on travel and then decrease your spending during other years. “This will give you a better opportunity to live the life you want during retirement,” Evans says.
[READ: Retirement Accounts You Should Consider.]
Live Abroad
“Often, retiring with $500,000 isn’t doable in the U.S., but one can relocate to countries such as Brazil and Portugal and have a comfortable retirement with such an amount,” says Luciano Oliveira, a real estate and relocation attorney at Oliveira Lawyers in Frisco, Texas.
Oliveira advises a geo-arbitrage strategy, which means retiring to another country where $500,000 lasts longer while allowing for a better quality of life.
“You can buy a property to secure legal residency abroad and reduce your monthly expenses,” he says. “Then keep the balance in a safe financial investment in the U.S. and use the proceeds to pay the monthly bills that will be lower than they would be back in the U.S.”
[Read: Where Retirees Can Buy a Home Overseas for Under $100K]
Manage the Risks
Retirees striving to make $500,000 last through retirement should remain vigilant about an expanded range of financial risks.
“These include the potential for outliving their savings due to increasing longevity, inflation eroding the value of their money, market volatility impacting their investment portfolio, health care costs, taxation changes and the consequences of excessive withdrawals,” Cannon says. “They should also consider risks related to Social Security benefits and unforeseen economic or market events.”
To mitigate these risks, diversify investments, budget prudently, maintain an emergency fund, seek financial guidance and stay informed about economic developments.
“Adaptability and flexibility are essential to address unforeseen challenges that may arise,” Cannon adds.
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Can I Retire at Age 70 With $500K Saved? originally appeared on usnews.com
Update 11/04/24: This story was published at an earlier date and has been updated with new information.
