If you are wondering whether you can retire at 60 years with 500k, this article is absolutely important for you to read.
It explains all about retiring at 60 and whether it is possible to achieve this goal of having $500,000 when you retire.
It would seem that one time or another, an individual’s thoughts, especially on a bad day at work, turned towards their retirement years.
Who hasn’t thought about relaxing on a sandy beach with a cold drink in one’s hand and just enjoying the outdoor air and breeze off of the ocean?
Or perhaps, one’s thoughts drift towards taking that dream vacation or enjoying a relaxing time with the grandchildren and loved ones.
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However, generally, the hard-core reality interrupts those moments of daydreaming and we realize that we need to continue to work and save to build up our nest egg for our retirement years.
Retirement at 60 With 500k Goal
Consequently, our workday moves forward and we watch our spending and can put aside a steady stream of revenue into our IRA or other investment vehicles.
All directed towards that ultimate dream of one day retiring and turning our back on the stress and anxiety of the workplace.
So, with all that in mind what does it take to ensure that an individual has enough money set aside to enjoy their retirement?
What is that golden amount or what is that specific financial goal that one needs to realize to retire comfortably?
Unfortunately, there is no set answer for an individual. There are several variables that all formulate together to make that specific retirement amount a dynamic goal.
So, for the sake of discussion, let us pose the question…
Can I retire at 60 years of age with $500,000 in investment?
Let us peel back this retirement onion and see what sort of layers and variables await us. Hopefully, in your case, it will not cause any or too many tears.
Can I Retire At Age 60 with $500,000?
Can I Afford To?
The simple answer is yes.
Let us assume you have this money invested and your rate of return is, for illustration purposes, 6%.
There are many investment calculators to aid in arriving at your return. One can be found at Calculator.net.
That means you will be adding to your portfolio $30,000 yearly.
If you did not draw any money out of your investment portfolio for the first year, your total retirement cache would be $530,000.
However, the assumption would be that you would need monthly income, and again for this scenario, not wanting to touch the principle of $500,000, you could draw $30,000 in one lump sum yearly or you could divide that return on your investment by 12 months which would give you $2,500 a month.
Certainly, some people would be able to retire with this amount of money coming in monthly to cover their bills.
Please note that the industry standard of drawing on one’s investment during the retirement years is considered to be 4%. This takes into account a 2% inflation rate.
Unless the rate of return increased or decreased, your principal will remain unscathed if you adhere to just drawing out $2,500 a month.
Tax laws allow for an individual to draw upon their Roth IRA without incurring any penalties.
This is because the taxes have already been paid. There are no limits to the amounts withdrawn.
If the retirement monies have been placed in a Traditional IRA mandatory withdrawals or required minimum distributions (RMD) do not become a requirement until the Traditional IRA owner reaches the age of 72.
Therefore, through a Traditional IRA, one can withdraw money without incurring penalties. However, the amount(s) withdrawn would be subject to income tax.
Reality Check #1: Income Needed
With that monthly amount in mind, it is now time for a reality check.
The first reality check is to figure out how much your income level is right now over a monthly basis.
For example, let us say that your net salary was $4,000 per month. This is not your gross salary but is your net salary as reflected through the taking out of insurance and payroll taxes.
The widely accepted rule of thumb for a financial goal of retirement income is to have at least 80% of your present monthly salary.
In this scenario, 80% of $4,000 per month would be $3,200.
Theoretically, that amount of $3,200 would help you to sustain the current comfortable level upon retirement.
However, it is important to note that the obvious variance between $4,000 and $3,200 is $800.
This could be classified as a very thin margin and one that could easily be dissolved if there are unexpected expenses such as major appliance repairs, medical expenses, or other unforeseen events that happen in life.
Also See: Should You Try to Live Below Your Means?
Reality Check #2: Prepare a Budget
A strong suggestion, before you quit your day job and start drawing on your retirement money, is to compile a budget.
A complete and accurate budget will give you a true financial picture of your current levels of income and expenses.
Not to insult your intelligence, it is important to put on one side of the spreadsheet or ledger all your streams of income and on the expense side list all of your current expenses.
Now using this as a template add or subtract various amounts affiliated with line items that you anticipate for your retirement years.
For example, on the income side of the ledger, you would take out your current salary and replace it with your anticipated retirement income.
It is important to remember that all streams of your retirement income should be included. This would be the amount drawn on your retirement portfolio, Social Security, any pensions, etc.
On the expense side of the ledger, you could reduce any gas purchases as commutes would most likely no longer be part of your expense.
Other suggestions could include cost savings measures including a reduction in entertainment, dining out, other fluff expenses, etc.
It would also be prudent to put in an expense line item for contingencies and put a set amount of the income aside for those unplanned events.
Related: Best Budget Planners, Books and Apps.
A good rule of thumb is to have set aside a contingency amount of 3 to 6 months’ worth of monthly income.
In our scenario that would be at a minimum of $7,500 or $625 a month.
Now it is important to realistically look at that budget and to make sure that the two sides of the ledger at least balance.
Sometimes it is good to look at things in black and white and hopefully, your budget does not reflect the colors of black and red.
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Reality Check #3: Trial Run
Another strong suggestion before plunging into retirement is to do a trial run.
This certainly works in some sports in which a trial run is performed to learn the course and to evaluate one’s strength and stamina.
When looking at retirement, this same strategy can be powerful.
Therefore, you may wish to limit your expenses and income based on your proposed retirement budget.
All streams of revenue must be removed except that anticipated amount from your retirement fund.
Then, through the ensuing six months to a year ensure that you stay within the confines of that monthly $3,200.
If it doesn’t work in the trial run, then something needs to be adjusted or plans need to be delayed.
Also See: Less Stressful Jobs to do after Retirement.
Reality Check #4: Suggestions
Other suggestions that retirees may consider and utilize include additional ways of increasing the income side of the ledger.
For example, consideration of a part-time job on the weekends to earn extra income may be an option.
This can be accomplished by not immersing themselves back into the hectic workforce, but earn additional money by doing something that the individual loves and is not stressful.
Also, if you live in a large home, perhaps downsizing is the answer and moving to a smaller home.
This may decrease one’s expenses by experiencing less overhead.
Or if living in a large home and an extra bedroom is available perhaps that extra room could be rented out.
Finally, another possible suggestion, if one owns their home, is to consider a reverse mortgage.
This writing is not meant to flesh that option out or promote the use of a reverse mortgage.
It is simply an option that the potential retiree may wish to explore.
Related: Tips to Help You Rent-to-Own Your Home.
Confessing that I would dream of my retirement years, I began to run various scenarios regarding retirement income.
I would research what the experts recommended in regards to the percentage of income that one should have coming into the house based on the current monthly income while employed.
Added to the mix would be figuring out the retirement budget including other sources or streams of income, any pension plans, and Social Security.
Then taking these figures and plugging them into a spreadsheet I was able to see visually what income would be needed to live a comfortable lifestyle based on our current lifestyle that we are experiencing.
Also, added into the spreadsheet, on the expense side, was a reduction of gasoline costs and other expenses related to working.
Fortunately, the income side of the ledger was greater than the expense side of the ledger and we realized that our retirement expectations could be realized.
Added to the mix were other revenue streams from income such as IRAs or investment vehicles.
When anticipating income from your IRAs it is important to take into consideration the Required Minimum Distribution and also factor in inflation, the cost of living, and return of your investment.
So I encourage you to make sure that you do your homework, research and understand what your approximate income will be, and compare the total with what you expect to do with your retirement years.
You Can Retire at 60 with $500,000
And why not, right?
You have worked hard these last forty-plus years. To your credit, you have accumulated a nice little nest egg of $500,000 or more.
Now you wish to explore the possibility of retiring and enjoy the fruits of your labor; however, a little apprehension may be lurking.
You want to continue to honor your hard work and that $500,000 you have accumulated.
You don’t want to see it dwindle by making a financial move that will jeopardize your full life yet to be enjoyed.
The reality is that you can retire.
You can leave the corpus alone and draw on the monthly return of the $500,000 investment. With a few adjustments on the expense and income side of your budget and ensuring that your expenses are fulfilled, modified retirement plans can be enjoyed.
This could be a semi-retirement plan of action.
Or, you can simply go with your current budget and draw upon the $500,000 to supplement your income to realize the income required.
We work hard daily to support ourselves and those that we care about. This daily commitment extends also towards a future commitment in that one day we anticipate retiring.
We have retirement dreams and we have methodically put a portion of our earnings away and made our money work for us.
Additionally, we have heard those occasional stories where individuals have saved and saved for retirement and then life happens, and their retirement dreams are interrupted.
We have vowed, to the best of our ability, not to allow life to interrupt our retirement dreams. As part of that strategy, we are looking at taking an early retirement upon reaching the age of 60.
So now, quite possibly, through your research, completing a trial run on a retirement budget and running several scenarios, you are going to enter into the world of retirement.
Congratulations! You have worked hard for your money. Now let your money work hard for you!