Have $500,000 to spend in retirement? Here's what you can budget per year
Author: Dana George
Source: The Motley Fool
If you're like many of us, you may be unsure whether you're saving enough for retirement. After all, no one knows for certain how much money they'll need throughout their golden years.
That said, if it looks like you're going into retirement with $500,000 put away, you can make certain assumptions about how much money you can budget for each year.
The 4% rule
While there is certainly debate regarding the "perfect" amount to withdraw from your retirement account each year, the long-held rule of thumb is 4%.
According to the 4% rule, if you have approximately 50% invested in stocks and 50% in fixed-income assets (like bonds), withdrawing 4% annually means you won't run the risk of running out of money for 30 years. That's because most of the money you withdraw will consist of interest earned on your investments.
If you choose to follow the 4% rule, having a cool half million in savings means you can safely withdraw $20,000 the first year and make adjustments (depending on inflation) in the following years.
Add that to other sources of guaranteed income
Are you due to receive a pension or Old Age Security benefits? If so, you can add that amount to the 4% taken from a retirement account. If you're counting on Old Age Security benefits to pay the bills, how much you receive will depend on how much you earned during your working years and how old you are when you retire.
Other variables
As you total up your guaranteed income, don't forget to factor in any other streams of income you may receive in retirement. If you have rental property or annuity payments, tack them onto your total.
Compare your anticipated income to your expected post-retirement budget. If it looks like you'll have plenty to see you through, that's great! If there's a gap, figure out how large that shortage is.
For most of us, retirement won't be the end of our dreams. If you plan to turn a hobby into a small business or work part-time outside the home, it can be good for you socially, mentally, and financially.
Let's say there's a $15,000 gap between your retirement income and how much you plan to spend each year. You know that your part-time gig needs to bring in at least $15,000 -- again, after taxes.
Having a rough idea can be helpful
If you're just beginning to put numbers together, coming up with a post-retirement budget, and figuring out how much income you can expect, it's a good time to determine how much you can expect to pay in taxes.
Of course, those brackets may change between now and the time you retire, but at least you'll have a good idea of how much you can expect your tax burden to fall.
If you're feeling nervous about retirement, you're not alone. The best we can do is double down on our efforts to put as much money away as possible, remain as healthy as possible, and do everything we can to create a retirement we'll enjoy.
This article was written by Dana George from The Motley Fool and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
