How much interest can I make on 500k? The interest you can earn on $500,000 depends on where you invest it. If you put it in a high-yield savings account with an interest rate of 4%, you'd earn $20,000 per year.
For simplicity's sake, let's assume your portfolio of bonds, certificates of deposit (CDs), cash and dividend stocks will average a 4% return per year. Now, take your desired annual income of $60,000 and divide it by the interest rate (0.04). The result would be a savings goal of $1.5 million.
If you use the classic 4% rule to manage your retirement savings, with a $500,000 balance, you're looking at about $20,000 per year in income. But that's probably not your only income source available. Chances are, you're eligible for Social Security at the very least.
What proportion of American households have saved at least $500,000 for retirement? Believe it or not, data from the 2022 Survey of Consumer Finances indicates that only 9% of American households have managed to save $500,000 or more for their retirement.
Savings of $500,000 may sound like a lot of money. And it is. But if you retire at age 45 to live off of that amount alone, it may not last very long unless you live very frugally. Even then, those savings may get consumed while you're still living.
Americans in their 70s have an average retirement savings balance of $1,068,290; the median is $509,038, putting some 70-year-olds in the retirement millionaire bracket. Most Americans retire in their mid-60s and may start to see healthcare costs eating up a portion of their retirement nest egg.
If you have $500,000 in a pre-tax IRA and expect $2,000 per month from Social Security, you may have enough money to retire at age 67. A half million dollars is a relatively modest nest egg, but it can still generate a comfortable income depending on your standard of living.
What are the average and median retirement savings? The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.
Yes, $500k Might Be Enough
With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier. Clearly, more money provides more security and more options.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
In fact, many wealthy people can and do "live off the interest." That is, they put a chunk of their fortune in a relatively safe collection of income-generating assets and live off of that—allowing them to be more adventurous with the rest.
Rounding up for safety, you'd need at least $1.3 million saved to generate $53,000 per year using the 4% rule. That means if you had $500,000 saved, as O'Leary suggested, withdrawing 4% annually for 30 years would only provide a safe spending amount of $20,000 per year.
A $500,000 annuity would pay you $29,519.92 per year in interest, or $2,395.83 per month if you prefer to set up systematic withdrawals of interest. These payments assume a guaranteed interest rate of 5.75%. If you would like to see rates for deferred annuities you can find today's annuity rates here.
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement. According to this rule, for every $240,000 you save, you can withdraw $1,000 per month if you stick to a 5% annual withdrawal rate.
Believe it or not, according to the 2022 Survey of Consumer Finances, only 9% of American households have saved half a million dollars or more for retirement. That's right, less than one in 10 families has reached this milestone. It's an impressive feat, but it also highlights the challenges many people face.
With $4,000 in monthly costs, your retirement funding challenge calls for $48,000 annually. The 4% safe withdrawal guideline proposes that retirement savings can safely produce 4% income per year, adjusted upwards annually for inflation, with little risk of depletion over a 30-year retirement.
Depending on how you manage your money, you can probably expect an annual income between $48,000 (at roughly $4,000 per month) and $63,000 (at roughly $5,300 per month). More is possible if you invest for more aggressive returns, but that will mean taking on more risk.
The maximum Social Security benefit at full retirement age is $3,822 per month in 2024. It will be $4,018 a month in 2025. It's $4,873 per month in 2024 if retiring at age 70 and $2,710 if retiring at age 62. A person's Social Security benefit amount depends on earnings, full retirement age and when they take benefits.
The ideal monthly retirement income for a couple differs for everyone. It depends on your personal preferences, past accomplishments, and retirement plans. Some valuable perspective can be found in the 2022 US Census Bureau's median income for couples 65 and over: $76,490 annually or about $6,374 monthly.
In a recent NerdWallet survey, 57% of Americans said they were living paycheck to paycheck.
One study distinguishes the young-old (60 to 69), the middle-old (70 to 79), and the very old (80+). Another study's sub-grouping is young-old (65 to 74), middle-old (75 to 84), and oldest-old (85+).