Maybe you have $500k in savings and want to know when you can quit the rat race. Or, perhaps you are getting close to that number and starting to figure out how much you’ll actually need to retire. Maybe you’re just curious about how much you’ll have to save with your full working life ahead of you. But the main question you have is, how long can you live on 500k?
This post was written by our staff writer, Lindsey Smith.
So what’s the answer? How long can you live off 500k?
That depends on a lot of things of course…
- Your goals in life,
- current or desired lifestyle,
- the size of your family,
- how expensive it is to live where you live,
- whether you own your home outright or carry a mortgage,
- if you have kids that aren’t finished college yet,
- and whether you’re getting other benefits like Social Security or a pension.
Once you understand all of those things, what you really want to know is…
- Can I retire with $500k?
- How much interest will I earn on $500,000 per month?
- How long will $500,000 last in retirement?
So let’s break down some numbers and scenarios and see if it’s possible.
How Much Interest Will I Earn on $500,000 Per Month?
How much interest you’ll earn on $500k depends on how you’re putting that money to work.
If your 500k is just sitting in the average savings account, you’re earning about 0.06%, or $300 per year (ie. $25 a month). Definitely not enough to live on.
How Much Interest Will I Earn on 500k at 4% Interest?
If you invest that money conservatively and figure a 4% return per year, your investment of $500k will earn around $20k per year. That works out to $1,667 per month, before tax.
(FYI – With this method, you’ll only be living on the interest your money generates, which means you’ll be keeping a large portion of the principle — ie. when you die, you’ll still have roughly $500k).
Can you live off that?
Again, that depends on your personal situation.
- your house is paid off,
- you live in a low cost of living area,
- you don’t have to help any children with college or other expenses,
- and you can be really, really thoughtful about your spending habits.
How Much Interest Will I Earn on 500k at 7% Interest?
If you can tolerate a mix of risk in your investment portfolio, you can look at a 7% return on your investment.
That would give you a little more comfortable $35k per year, or $2,917 per month.
You’d still need to have low expenses and your home paid off if this was your only source of income, but with a mix of Social Security and pension, this would be enough to live off of comfortably.
Maybe you’re okay with thinking outside the traditional investment box, and invest your $500k into real estate. This can potentially bring you higher dividends each month than investing in stocks and bonds, and has the added benefit of growing your principal over time as your asset appreciates. Of course, it’s more work and more risk so you’ll need to weigh the pros and cons of having a hands-on or hands-off investment approach.
So, can you live off $500,000?
Yes, it is possible.
With a well thought out approach and a good understanding of your lifestyle and spending habits, you can likely find a solution that allows you to live off $500k.
Can I Retire on 500k Plus Social Security?
Maybe you think the above dollars are a little tight to survive on. But, if you’re close to retirement already, then you might be pretty confident in getting Social Security payments each month. So with that, can you retire on 500k plus Social Security?
Retiring on 500k plus Social Security
Let’s say you get the average 2020 Social Security payment, which is $1,543 per month.
If you have your $500k invested conservatively at a 4% return, you’ll be earning another $1,667 per month, for a total of $3,210 per month. That should be comfortable enough for one person with no monthly housing expenses.
What if you had interest earnings from 500k plus a Social Security AND a pension each month? How much would that earn you each month? Would it be enough for you to live on?
Let’s assume your pension is $1,000 per month. Add the $1,667 per month from your earned interest on the $500k and the $1,543 from Social Security, and now you’re looking at $4,210 per month. That’s enough to live comfortably with or without housing expenses.
Retiring on 500k plus two Social Security checks and a Pension
Maybe you also have a spouse, and they get the average Social Security benefit too. That’s another $1,543 per month, and now you’re up to $5,753 per month. That’s almost $70k per year.
If you didn’t happen to have a pension you’re at $4,753 per month, and still coming out with a livable income for retirement for 1-2 people with average expenses. Even better if you own your home outright.
Bottom line: $500k is enough to retire on with other income sources, especially when your monthly expenses are minimal.
When Can I Retire If I Have 500k in Savings?
How long can you live on 500k? Or, said another way, when can you retire if you have 500k in savings?
This depends on whether your retirement money is invested and making dividends, or whether you’re just going to pull money out from the principal each year.
Overwhelmingly, dividends are often your best bet. As stated above, you can live off the dividends frugally on $500k, and even more comfortably if you have other income sources.
What if you earn 4% a year on 500k?
Can you retire at 55 with 500k?
Or if not, can you retire at 60 with 500k?
Let’s start with this one. If you sock away this hefty sum of cash and earn 4%, can you retire at 55 with 500k? How long will 500,000 last in retirement at 4% interest?
Earlier, we assumed that you’d only life off the interest and would want to keep the $500k whole. Let’s flip that assumption for this analysis. Let’s say you’d be willing to live as long as possible, even if that meant cutting into the principle.
According to the Bankrate Savings Withdrawal Calculator, if you have $500k and earn 4% on it…
…you could withdraw $25,000 a year for 37 years.
This means that you’d have money until you were 92 years old. Not too bad, honestly.
But don’t forget about inflation!
While the plan above seems pretty rock-solid, you should consider inflation before you pronounce your early retirement.
On average, we see about a 3.5% inflation rate each year, which means that your dollar earns 3% less with each passing year. This means that every 20 years, your purchasing power is cut in half. Said another way, If you live on $25,000 twenty years from now, it would be like living on $12,500.
If you think that’s doable, GREAT! If not…then you might want to save some more dollars in your nest egg!
Related: How Much Do I Need to Retire at 55??
How about retiring at 60 with 500k? Is this more doable? How long will 500,000 last in retirement at 4% interest?
Basically, you need a set amount of money for roughly 30 years (assuming you’ll only live till 90 years old). If you earn 4% each year, how much can you withdraw and still have some money left when you die?
Again, according to Bankrate’s awesome savings calculator, you can retire at 60 years old with 500k if you can handle living on $27,500 a year.
Like we mentioned earlier in this post, perhaps you have Social Security income AND a pension. Because of this, you feel like $27,500 a year is just fine. And therefore, you CAN retire at 60 with 500k!
Other Factors to Consider If You Retire on 500k
You’re reading this article because you’re wondering, “How long can you live on 500k?”
Whether you think this is a lot of money or hardly anything at all, we want you to keep thinking and to keep asking questions!
There are other factors to consider too when deciding what age to retire and whether it’s feasible to do it with $500k.
Other income sources like Social Security benefits and a pension play into your income after retirement, but so does where you retire. If you live in a high cost of living area, you could consider buying a smaller home in a low cost of living area, which could give you more capital from the sale of your house and lower expenses going forward.
Retiring abroad is another option. Places like Mexico and Costa Rica have very low cost of living. Consider health care wherever you head, and take the best care of yourself that you can.
Related: Top Places to Retire Outside the USA
How Long Can You Live on 500k? Will Your Money Last?
$500k isn’t a lot to live on, but it can be enough. Especially if you have other income sources, low expenses, and are smart about how you spend.
Knowing your goals and lifestyle and the kind of life you want to live in retirement ahead of time will help you decide if it’s enough for you, or what adjustments to make so that it is. Whether that’s working longer so you can save more, or moving to a lower cost of living area, there is a way to make it work for you.
What about you? What does the math tell you about your situation? How long can you live on 500k?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.