I’m 65 years old and retiring next year with a $500K nest egg — how much money will I be able to spend per year?

How much can I spend with a $500K nest egg?

At some point, you’ll make the switch from building your nest egg to living off your nest egg. For many, this isn’t an easy transition. Maybe you haven’t reached a “magic” number for retirement, so are your savings enough to last? By determining how much you can spend each year, you can make a financial plan for retirement so you can be as comfortable as possible.

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Retirement savings of $500,000 is a reasonable nest egg that many might still consider too small to retire on. Baby boomers believe they’ll need $990,000 to retire comfortably, according to Northwestern Mutual’s Planning and Progress Study 2024. When all U.S. adults were surveyed for the same study, that number increased to $1.46 million.

Yet, these numbers are far from reality. In the Northwestern Mutual survey, baby boomers say the amount they’ve currently saved for retirement is $120,300. And, when respondents from all generations are included, that amount drops to $88,400.

Data from the Federal Reserve’s 2022 Survey of Consumer Finances (SCF) is somewhat better, with the median household retirement account balance for Americans aged 65 to 74 at $200,000. But that still falls short of what most Americans think they’ll need.

How much should you spend in retirement?

Clearly, there are many 65 year olds retiring with less than $500,000 in savings. So how much can they spend per year?

A popular rule of thumb for withdrawing from a retirement account is known as the 4% rule, which is aimed at stretching your savings out over 30 years and is based on a balanced portfolio of stocks and bonds. You withdraw 4% of it in the first year and then, in subsequent years, you withdraw this dollar amount adjusted for inflation. In the case of a $500,000 portfolio, this would mean $20,000 to spend in the first year.

There are other similar approaches you can consider, like the percentage-of-portfolio strategy and fixed-dollar withdrawal strategy. The buckets strategy involves dividing your retirement savings into three buckets for different periods of your retirement. Something Vanguard researchers came up with for people with retirement horizons longer than 30 years is the dynamic spending strategy. The website says "this approach allows you to spend more when markets perform well and cut spending when they don’t. To avoid big fluctuations in retirement income, you set a limited range for your income stream by defining a spending 'ceiling' and a spending 'floor.'"

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Of course, $20,000 per year isn’t much to live on. Thankfully, most retirees in the U.S. also receive Social Security benefits. The average monthly Social Security benefit for 66-year-old retired workers in 2023 was $2,499.41, according to the Social Security Administration, which is a yearly amount of $29,993. Combined, the two sources would equal $49,993 per year. But is it enough?

While there are a number of ways to determine how much you’ll need in retirement, a rule of thumb is to aim for 80% of your pre-retirement income. The median annual wage of Americans 65 and older is $58,292, according to the U.S. Bureau of Labor Statistics. Eighty percent of this would be around $46,000.

How to stretch your nest egg

A retiree with $500,000 in their portfolio would benefit from having a budget they can stick to and looking for ways to save money where they can.

They have plenty of options for stretching their dollar, from more extreme measures (such as moving to a lower-cost location) to smaller changes (like taking public transit more often instead of driving). Groceries are a major expense for most households, so having a meal plan, eating out less and checking flyers can make a big difference. Small things like canceling unused internet or magazine subscriptions, reducing cell phone bills and skipping the muffin when buying a coffee can all add up.

Although many Americans think they need much more to retire, a $500,000 nest egg can still lead to a comfortable retirement. It may be worth consulting a financial planner to help make the most of your nest egg.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.