How long will $300,000 last in retirement? The answer to that depends on several things: starting with your lifestyle, your longevity, your investments and any other income you have. Let’s see if $300,000 is enough for retirement and some tips you can use to stretch your retirement dollars. A financial advisor can help you plan and save for retirement.
How long will $300,000 last in retirement?
To make $300,000 when you retire, 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 this can play out.
Example 1: Living modestly
Edie and Jim are both 68 and own homes in Akron, Ohio. They worked and saved together. Combined, they receive $48,000 a year in Social Security Income (SSI). Because of smart investing, their $300,000 is in a portfolio that sees a 6% annual return. That means their portfolio returns $18,000 in the first year. They take out $1,000 monthly to help them cover living expenses, or $12,000 a year, which is a 4% withdrawal. At this rate, their portfolio will grow $6,000 in the first year and grow steadily thereafter.
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Combined with SSI, that puts their annual income at $60,000. This is enough for Edie and Jim to live comfortably, but they don’t make any major trips or major purchases. This also does not take into account rising costs due to inflation, large, unexpected costs and taxes. On the other hand, if they can continue to live affordably, they can estimate that their $300,000 savings will last about 25 years.
Example 2: beyond resources
Sal and Pat live in Pensacola, Florida, where they mortgage an apartment. They are the same age as Jim and Edie and get the same SSI. However, because their investment portfolio is conservative, it only yields a 4% return, or $12,000 per year. Because of their higher expenses, they take in $3,000 per month, or $36,000 per year. This means they take in a $24,000 deficit every year. That’s a hefty 8% withdrawal rate, double the 4% rule of thumb that guides many retirees.
At this rate, without additional investment or cost reductions, their retirement savings will run out after about 13 years. This is not a solid retirement savings plan. To make their savings last, they need to drastically cut their spending or find an additional source of income, or both. For example, if they had a part-time or freelance job and were able to reduce their withdrawal to $1,000 a month, even if only for a few years while they slim down, that would significantly extend the time their savings would last.
How to make your retirement savings last longer
If you want to retire with $300,000 in your account, there are certainly ways to do it. You need to explore how to maximize what you have while reducing costs. Here are some easy ways to make your retirement savings last longer.
Have supplemental income
Supplemental income is part of most people’s retirement plan. When you retire, you move from one primary income stream to multiple streams. This includes your retirement savings, SSI, pensions, annuities and other sources of income.
For many people, retirement does not mean stopping work altogether. In fact, many people like working in a smaller capacity. Whether it’s a part-time job, freelancing or doing consultancy, the work generates money, but also mental and social stimulation.
Another source of supplemental income is passive income through investments. For example, say you own real estate. You can receive passive income in the form of regular, monthly rental payments. How much you receive depends on the costs of maintaining the home, the value of the home and how desirable the location is.
Another possibility to stretch your pension savings is to retire later. If you retire at 70 instead of 60, that’s 10 years of extra income and savings you’ve generated. It’s also 10 years where you don’t have to worry about living out your retirement savings. However, keep in mind that working full-time later in life can become more difficult every year. You need to balance the quality of your life with the need to postpone retirement.
Fortunately, 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 kids, they’re probably out of the house. That makes it the perfect time to cut back. If you own your own home or have a lot of equity, it can make sense to capitalize on this asset. Downsizing to a smaller, more affordable home can add a large sum of money to your account. You can invest that money and use the returns to bolster your retirement savings.
Put your money in investments with a reliable return
Different types of investments can yield returns. Some are riskier than others, but a diverse investment portfolio can still make room for them. Here are a few investments known for generating returns:
annuities: Annuities are contracts that you enter into with insurance companies. In exchange for your investment, the insurance company usually pays you a guaranteed monthly amount. There are a few different types of annuities, with different risks and returns. Overall, they are one of the safer investments you can make. Remember, the insurance company will only make those payments while you are alive.
REITs: Real estate mutual funds are companies that own and operate real estate. They are required by law to distribute 90% of their profits to shareholders. That means if you invest in well-managed REITs, you’ll see returns for years to come. However, if a REIT is mismanaged or there is a major upheaval in real estate, the investment could be at risk.
High Dividend Stocks: Dividend stocks are a type of security that regularly pays out money to investors. These payouts can range from 1% to 4% of
your investment. Check out our list of 10 high-dividend stocks.
It boils down
How long will $300,000 last in retirement? It all depends on your expenses, lifestyle, investments and additional income. Depending on where you are and how you live, it’s possible to make it work. There are several steps you can take – such as downsizing or postponing retirement – to stretch your retirement savings.
Tips for getting the most out of your retirement savings
If you’re not sure how much to save or how to invest, consider talking to a financial advisor. SmartAsset’s free tool pairs you with up to three vetted financial advisors serving your area, and you can interview your advisor matches 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)? SmartAsset’s free 401(k) calculator helps you estimate how much you should have to retire and how much you should save.
If you don’t have a 401(k), or if you want a more complete picture of your retirement savings, use SmartAsset’s retirement calculator to get a solid estimate of how much you need to save.
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