How long will $300,000 last in retirement? The answer to that depends on many things: your lifestyle, your life span, your investments, and whatever other income you have. Let's find out if $300,000 is enough for your retirement and some tips to help you increase your retirement budget. A financial advisor can help you plan and save for retirement.
How long will $300,000 last in retirement?
To have $300,000 in retirement you need to be smart with your money. While it's not impossible, it's not ideal either. Here are a few fictional examples of how that might play out.
Example 1: Modest life
Edie and Jim are both 68 years old and own their own home in Akron, Ohio. Both worked and saved together. Together, they receive $48,000 in Social Security Income (SSI) annually. Because of smart investing, her $300,000 is in a portfolio that's generating a 6% annual return. That means her portfolio will make $18,000 in the first year. They make monthly withdrawals of $1,000 to cover their living expenses, or $12,000 per year, which is a 4% withdrawal. At that rate, her portfolio will grow by $6,000 in the first year and steadily grow thereafter.
If you are ready to be matched with local advisors who can help you achieve your financial goals, get started now.
Combined with SSI, the annual income is $60,000. That's enough for Edie and Jim to live comfortably, but they don't take big trips or do big shopping. This also excludes rising costs due to inflation, high unexpected costs and taxes. On the other hand, if they are able to continue living this affordably, they can expect their savings of $300,000 to last them for about 25 years.
Example 2: Outside the means
Sal and Pat live in Pensacola, Florida, where they have a mortgage on a condo. They are the same age as Jim and Edie and receive the same SSI. However, because her investment portfolio is conservative, it only delivers a 4% return, or $12,000 per year. Due to their higher expenses, they withdraw $3,000 per month or $36,000 per year. That means they're withdrawing a $24,000 deficit every year. That's a whopping 8% withdrawal rate, double the 4% rule of thumb used by many retirees.
At this interest rate, with no additional investments or cost reductions, your retirement savings will be exhausted after about 13 years. This is not a solid retirement plan. In order for their savings to be sufficient, they must drastically reduce their expenses or find an additional source of income, or both. For example, if they had part-time or freelance jobs and could reduce their withdrawals to $1,000 a month, even if only for a few years while they downsized, it could greatly extend the life of their savings.
This is how you ensure that your retirement provision lasts longer
If you're looking to retire with $300,000 in your account, there are definitely ways to do it. You need to consider how to maximize what you have while reducing costs. Here are some simple ways you can make your retirement savings last longer.
have extra income
For most people, an additional income is part of their old-age provision. When you retire, you switch from one primary source of income to multiple sources of income. This includes your retirement savings, SSI, pensions, annuities, and other sources of income.
For many people, retirement doesn't mean stopping work altogether. In fact, many people like to work in a smaller capacity. Whether part-time job, freelance work or consulting: The work brings money, but also mental and social stimulation.
Another additional source of income is passive income from investments. Suppose you own a property. You receive passive income in the form of regular, monthly rental payments. How much you get depends on the cost of maintaining the property, the value of the property and the attractiveness of the location.
Another way to top up your retirement assets is to retire later. If you retire at 70 instead of 60, that's an extra 10 years of income and savings you've generated. Plus, it's 10 years when you won't have to worry about living off your retirement savings. However, keep in mind that with each passing year it can become more difficult to work full-time later in life. You must balance your quality of life with the need to delay your retirement.
Luckily for many, retirement can really simplify things. You no longer have to keep up with the hustle and bustle of your career, and if you have children, chances are they are not at home. That makes it the perfect time for downsizing. If you own a home or have a lot of equity, cashing out on that asset can make sense. Downsizing to a smaller, less expensive home can add a large amount of money to your account. You can invest this money and increase your retirement savings with the return.
Invest your money with reliable returns
Several types of investments can generate returns. Some are riskier than others, but a diverse investment portfolio can still make room for them. Here are some investments that are known to generate returns:
pensions: Annuities are contracts that you enter into with insurance companies. In return for your investment, the insurance company will usually pay you a guaranteed amount every month. There are different types of annuities with different risks and rewards. In general, they are among the safer investments you can make. Remember that the insurance company only makes these payments while you are alive.
REITs: Real Estate Investment Trusts are companies that own and operate real estate. By law, they are required to pay out 90% of their profits to shareholders. That means if you invest in well-managed REITs, you'll see returns for many years to come. However, if a REIT is mismanaged or there is major real estate upheaval, the investment could be at risk.
High Dividend Stocks: Dividend stocks are a type of security that regularly pay out money to investors. These payouts can range from 1% to 4% of your investment. Check out our list of 10 high-dividend-paying stocks.
How long will $300,000 last in retirement? It all depends on your expenses, lifestyle, investment and extra income. Depending on where you are and how you live, it might work. There are several steps you can take – such as downsizing or postponing retirement – to extend your retirement savings.
Tips on how to get the most out of your retirement savings
If you're unsure how much to save or how to invest, you should speak to a financial advisor. SmartAsset's free tool puts you in touch with up to three verified financial advisors operating in your area, and you can interview the appropriate advisors for free to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
Wondering how much you should contribute to your 401(k) post? Use SmartAsset's free 401(k) calculator to estimate how much you have left for retirement and how much you should save.
If you don't have a 401(k) or want a more comprehensive view of your retirement savings, use SmartAsset's retirement calculator to get a solid estimate of how much you need to save.
Photo credits: ©iStock.com/Inside Creative House, ©iStock.com/Inside Creative House, ©iStock.com/GetUpStudio
The post How long will $300,000 last in retirement? appeared first on the SmartAsset Blog.