Wealth Management & Financial Planning

Wealth Management & Financial Planning


How to Retire on 500k, The Wrap Up

The theme for the last 10 weeks has been retiring with $500k. The last nine weeks addressed individual issues in-depth. (Request a consolidated copy of the articles at yourlifeafterwork.com.) So what’s the answer? It depends on you.

The amount of assets you have is only one of the issues. The tax bracket you are in and the type of investment mix you have are just as important. Presuming you have no other income than Social Security and your $500k Piggy Bank you are likely in the 10-12% federal tax bracket. A reasonably balanced portfolio of stocks and bonds should allow you to withdraw 3.2-4% income annually over your lifetime.

The $18,000 per year removed from your investment account will be taxed differently depending on its tax nature. IRA’s and 401k’s will be taxed at the tax bracket mentioned above where an account after tax is not subject to long-term capital gains rates. If your tax bracket is higher (higher income than just Social Security and your Piggy Bank) then you are subject to even more tax. Congratulations!

The key question is how much do you need to maintain your standard of living? We recommended that you create a retirement budget consisting of both ongoing fixed expenses as well as discretionary income for the fun things in life like travel. The greater your income needs, the longer your life expectancy, the more in assets you will need.

An interesting comment by Bill Gates, founder of Microsoft, said: “We vastly overestimate what will happen in the next two years and massively understate what will happen in the next 10 years.” Gates's comment was around technological developments, but it has resonated with my 30+ year career in the financial world. People tend to worry about headlines and politics and market movements occurring right now much more than we think about inflation over a 30-year retirement.

Don’t short change your retirement by assuming you will die too early and run out of money. The other side of the coin happens more often in our experience. People spend less than they can for fear of running out and leave behind assets to heirs more than willing to spend it!

Create a budget that addresses inflation on fixed expenditures so that if you are around age 95 you still have a place to live. Recognize that most people reach an age where the couch triumphs over travel. Consider not including inflation on discretionary expenditures.

Should you desire to leave behind assets that is absolutely fine and we are supportive. Just make sure you are leaving behind assets because of previous good savings habits, not from fear of running out of money.

Retirement is a state of mind. Success comes from providing for the standard of living you choose. Planning put in place prior to leaving the workforce is essential. Remember you are unique. These strategies were general in nature. Always consult your professional advisors and happy retirement.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see our Disclosure page for the full disclaimer.

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