Is $500k enough to retire?
For sure $500k is a lot of money, but is it enough to quit your job and retire early? Let’s find out.
In this article we will analyze if it is possible to live from your savings and if so what conditions should you meet in order to retire having $500,000.
Initial savings: | $500 000,00 | |
Interest rate: | 8% | |
Monthly withdrawal: | $3 000,00 | |
Annual increase of withdrawal: | 0% | |
Your savings will last for: | 42 years 7 months |
Assuming you will not just keep your capital in a savings account but have it invested in high yield asset classes like stocks or REITs with average return rate of 8%, you could withdraw $3 000,00 a month for 42 years 7 months until your capital of $500 000,00 gets depleted.
Unfortunately, this assumption is rather optimistic and in practice difficult to replicate in real life. For several reasons:
Interest rate of 8% is too optimistic
Although assumed APR of 8% is what you could expect from stocks, it is advised to lower your exposure to high volatility assets during retirement. So in practice your $500 000,00 will give you a lower return rate than in the example above.
Inflation
What’s more the example above does not consider inflation which is a main obstacle in long term investing.
Taxes
As you probably expect you will have to pay income tax from interests earned on your capital. The calculation below assumes that those $3 000,00 is after tax deduction.
Can I retire on $500 000,00?
In most cases yes. You can retire with $500 000,00. Below we describe what criteria you should meet in order to retire early with $500 000,00 in savings. You could calculate your own scenario using our calculator.
In order to find the precise answer you need to ask yourself the following questions.
How much money do I need per month?
Answering this question is a key to preparing a retirement plan. If your monthly expenses are in balance there is a high possibility you will be able to quit your job with $500 000,00 in savings, but if your costs of living are very high there is no chance that $500 000,00 will be enough for early retirement.
It’s very important to be as precise as possible. You need to calculate not only your regular daily expenses for food and bills.
You should also include expenses you pay once a year like property tax, insurances etc. Finally you should add a reserve to some unexpected events like car and home repairs. The best way to do that is to add extra 20% to 30% to the projected monthly expenses.
What is my projected time on the retirement?
This question is as important as the previous one. The situation for people in their 30s or even 40s is much different than those above 50 years old.
The older you are, the less money you will spend on retirement. Therefore older people have an advantage against millennials.
At the end of the article we present the table with calculations of how much money you could withdraw per month from your saved $500 000,00 depending on your age.
What is my effective interest rate from your investments?
The compound interest is your greatest ally. Thanks to this magic formula, you will be able to benefit twice from each dollar you make and that $500 000,00 you have saved will last longer.
The table below shows how much interest per month you can get from $500 000,00 depending on the average interest rate of your portfolio.
Interest rate | Monthly interests | Tax | Interests after tax |
---|---|---|---|
4% | $1 676,67 | $251,50 | $1 425,16 |
5% | $2 095,82 | $314,37 | $1 781,44 |
6% | $2 515,00 | $377,25 | $2 137,75 |
7% | $2 934,17 | $440,12 | $2 494,03 |
8% | $3 353,32 | $503,00 | $2 850,32 |
9% | $3 772,50 | $565,87 | $3 206,61 |
10% | $4 191,67 | $628,75 | $3 562,90 |
How high will the inflation be in the future?
Another important factor that is most often forgotten is inflation. The biggest enemy of savers. It should never be underestimated since even low inflation of 1% to 2% could ruin your plan of early retirement.
The table below shows how $500 000,00 will decrease in value over time due to inflation.
Inflation | Initial value | Future value after: | ||
---|---|---|---|---|
10 years | 20 years | 30 years | ||
1% | $500 000,00 | $459 241,77 | $421 805,95 | $387 421,71 |
2% | $500 000,00 | $421 781,03 | $355 798,34 | $300 137,84 |
3% | $500 000,00 | $387 352,63 | $300 083,96 | $232 476,42 |
4% | $500 000,00 | $355 712,89 | $253 063,26 | $180 035,51 |
For more details you may visit our inflation loss calculator to check how much will be $500 000,00 worth in future.
How long will $500 000,00 last in retirement?
This depends mostly on two factors: the amount of monthly withdrawals and the effective interest rate of your investments. The table below shows how long your savings will last depending on those two factors. The calculations assume that entire amount of $500 000,00 will be invested, and you will receive regular interests. In most cases in order to keep certain standard of living you will need to spend not just the interest, but some portion of accumulated capital as well.
Interest rate | Monthly withdrawal | Savings will last for |
---|---|---|
4% | $2 400,00 | 26 years 3 months |
$3 000,00 | 18 years 9 months | |
$3 600,00 | 14 years 8 months | |
$4 500,00 | 11 years 1 months | |
6% | $2 400,00 | 42 years 6 months |
$3 000,00 | 24 years 2 months | |
$3 600,00 | 17 years 6 months | |
$4 500,00 | 12 years 6 months | |
8% | $2 400,00 | 1000 years 1 months |
$3 000,00 | 42 years 7 months | |
$3 600,00 | 22 years 9 months | |
$4 500,00 | 14 years 7 months | |
10% | $2 400,00 | 1000 years 1 months |
$3 000,00 | 1000 years 1 months | |
$3 600,00 | 48 years 8 months | |
$4 500,00 | 18 years 3 months |
As you see if you keep your expenses in check you could retire with $500 000,00 in savings. With the monthly withdrawals of $2 400,00 you wil be more likely to retire than if you keep spending $4 500,00 a month.
High interest rate is also an important factor, however since you won’t have direct control over it is best to assume low performance of your investments and be positively surprised eventually.
How to retire with $500 000,00?
Once you know what criteria should be met in order to be able to retire with $500 000,00, you could prepare your plan.
- Calculate your monthly living expenses. Try to be as accurate as possible.
- Calculate how much interest a month you make from $500 000,00 in savings. You can use our interest calculator.
- Deduct income tax from the interest earned.
- If the interest amount after tax may cover your expenses you could safely retire.
If you wish to retire comfortably with $500 000,00 you can live not only from interests but you could start spending saved capital. However such an approach carries a risk that your savings will get depleted sooner than you might expect.
At what age can you retire with $500 000,00?
If you are young in your 20s or 30s you might need to accumulate higher capital or wait a few more years. Below we will analyze at what age you could retire safely with $500 000,00.
How can you retire early at 35 with $500 000,00?
To be completely honest it will be very difficult. It will require a lot of effort and a bit of luck.
- You need to decrease your spending in order not to deplete $500 000,00 too soon.
- You need to take some risk and invest aggressively in order to reach a high return rate.
Of course you can always move to a country with lower costs of living where you can retire with $500 000,00.
How can you retire early at 45 with $500 000,00?
This scenario will be difficult as well but much more probable than retirement at 35 with $500 000,00. These additional 10 years make a big difference.
- You need to decrease your spending in order not to deplete $500 000,00 too soon.
- You need to invest your savings with a decent interest rate, but it could be a balanced portfolio according to the 60/40 rule.
How can you retire early at 50 with $500 000,00?
If you are reasonable and could keep your spending in check, $500 000,00 is more than enough to retire early. This is much sooner than the official retirement age in the US and any other country. With Calcopolis you can estimate your standard of life on that early retirement.
- Visit our living from a savings calculator.
- Fill in the form with all necessary data like your desired retirement income, expected interest rate and income tax value.
- The calculator will give you precise information if the analyzed scentario is viable or not.
Summary
Early retirement with half a million dollars is difficult however possible if certain criteria are met.
While for young people it will be difficult to live just from accumulated capital of $500k, at least in the United States. However for people in their 50s that amount of money is more than enough.
This analysis does not take into consideration that after you reach your retirement age you will start receiving regular pension so this additional influx of money could change your situation.
If you wish to analyze different scenario you may use our living from a savings calculator or jump into our report on how to retire with $600k in savings.