Episode #19- Can You Retire on Less Than 500k?

Wealth Decisions Podcast Transcript for Episode #19- Can You Retire on Less Than 500k?

Listen to this episode on Apple Podcasts or Spotify

You know, I've talked a lot about creating financial independence and financial freedom and the strict things that you have to do to achieve those types of goals.

I was on the golf course the other day, and an individual asked me, you know, how much do you need to retire?

And I said, well, it's different for everyone, you know.

There's a lot of numbers being thrown out there like, well, you need a million dollars or you need $4 million.

But it all depends upon the lifestyle that you want and the lifestyle that you're used to having.

In today's episode, I'm going to be talking about how to retire on less than $500,000.

You know, retiring comfortably is a dream that many of us have, but the commonly cited recommendations of having a million or more saved can seem really daunting, especially for those that have modest incomes.

But it is possible to retire on less than $500,000 with the right planning and lifestyle adjustments.

So this episode is for anyone that maybe doesn't feel like they're on track to retire or maybe feels like they'll never retire, but it's also for anyone that is approaching retirement and have done some of the things to achieve financial independence or financial freedom.

We're going to talk about six things to consider to be able to retire on less money.

So number one, you want to look obviously at your budgeting and do some expense management.

The foundation of any successful retirement plan is a solid budget, especially when working on less than a $500,000 portfolio by the time you retire because every dollar at that level counts.

So let's talk a little bit how to make the most of your money.

First of all, you're going to have to consider downsizing your living expenses.

In order to retire with less than $500,000, it's essential to focus on reducing your living expenses.

And that might be looking at a more affordable home, relocating to a cost-effective area, or even considering moving to a country with a lower cost of living.

By looking at your housing, your transportation costs, and day-to-day expenditures, you can maximize the impact of your retirement savings.

First, you just need to really create a retirement budget.

Start by listing all your expected expenses in retirement, including your housing, your food, your health care, and any discretionary spending like travel or hobbies.

You have to be really honest with yourself and what you truly need versus what you want.

Then you're going to have to look at areas to cut back on.

Look for those subscriptions you rarely use, dining out expenses that could be reduced, or entertainment costs that could be trimmed.

You know, the goal isn't to eliminate all the joy from your life, but you have to prioritize what truly matters to you.

If you haven't adopted a frugal lifestyle, you're going to have to adopt a more frugal lifestyle.

That doesn't mean you're going to be living like a hermit, but you have to find ways to enjoy life that don't cost as much.

For example, cook at home more often, and learn to make your favorite restaurant dishes.

Explore low-cost entertainment options, things you can do that don't require a lot of money.

Number two, you're going to want to maximize your Social Security benefits.

When you have a smaller portfolio when you retire, you're going to have to find ways to maximize some guaranteed income sources.

So if you retire with $500,000 or less, you're going to have to do some type of postponing of your Social Security because every year you postpone Social Security, you get a nice little pay raise.

Usually it's a 7% pay raise.

So you're going to probably want to take Social Security at full retirement age or age 70 to maximize that benefit of guaranteed income.

Number three, you're going to want to implement a very conservative withdrawal rate.

A lot of advisors in the investment community talk about a 5% withdrawal from your portfolio as being a sustainable withdrawal rate.

But you may have to take a lower withdrawal rate than even 5% to make sure this money lasts over a long retirement.

Number four, you're going to have to explore some housing strategies.

And that's going to be a decision most likely to downsize your home.

You either have to have your home paid off when you retire with less than 500,000, or you have to downsize.

And if you downsize, you could use some of that money from the sale of your larger home to a smaller one to add to your investment portfolio so you can create more income throughout your retirement.

Some other housing strategies might not be something we all think about or want, but you could consider a tiny home.

You know, it could significantly reduce your housing costs and your maintenance costs.

You could sell your house and buy an RV and should be a real cost effective way to travel and do all the things you want to do without that big cost of your mortgage and be able to use that sale of your home to buy that RV and take some of that difference to add to your investment portfolio to pay for expenses during this traveling RV time.

And the third strategy would be to explore a reverse mortgage.

This is a very unpopular strategy, but there is options out there to do a reverse mortgage to create an income from your home.

This allows homeowners 62 and older to borrow against their home equity.

And this can provide some additional income.

It definitely comes with some risks and costs.

Again, not my favorite option, but if you're considering this option, be sure to thoroughly research and consult with some type of financial advisor or someone in that space that knows all the ins and outs of reverse mortgages.

In Step 5, you're going to have to look at some income boosting options.

And that's looking at boosting your income with some type of part time job.

A lot of folks that retire, they end up getting a part time job anyway, even if they have enough money saved, whether that's a million dollars or two million dollars saved, they just want to do something.

They want to be social.

They want to be out and about.

And they don't want to sit at home.

So if you're going to retire with less than 500,000, you're probably going to have to have some type of part time job to create some income, whether it's a side gig or a part time job down at the Chips Pickleball Club or whatever you're looking at that you're passionate about, where you can be around people and create an additional income during, especially those first three to five years of retirement.

And the sixth thing to consider is your health care and insurance costs.

Health care is a major expense in retirement.

And if you retire before age 65, you're going to have to cover that insurance unless you have some type of a continuation from the company that you work at.

That's going to be essential.

If you do retire before 65 with less than 500,000, the only way you'll probably be able to do that is if you do have some type of continuation of coverage.

So most likely, if you're going to retire with less than 500,000, you're going to have to postpone your retirement till age 65.

And that way you'll get Medicare benefits.

And you won't have those burdensome health care premiums to pay.

There's a general rule of thumb for every 250,000 in investment assets with a 5% withdrawal rate as a consideration, that'll create about $1,000 a month in sustainable retirement income.

So if your health care costs are $1,200 a month, that's over half of your budget from your portfolio.

So you're definitely going to have to postpone retirement to age 65 if you're retiring with $500,000 or less.

So if you're going to retire with $500,000, you're going to be able to create about a $2,000 a month income from that portfolio using a 5% withdrawal.

And that's a gross number.

So it all depends on the makeup of the types of retirement accounts you have.

If everything is in a pre-tax 401k, that $2,000 gross is going to be less than that amount that you'll be able to use to fund your retirement.

If you have a little bit better mix of pre-tax and Roth and taxable accounts, you'll be able to create a more tax-efficient income off of that sum of money.

So if we can create $2,000 a month from your portfolio, and let's say your Social Security is $3,000 a month, that means your budget is going to have to be around $5,000 per month to be able to make retiring with $500,000 or less work long-term.

So retiring on less than $500,000 is definitely challenging, but it's far from impossible.

By carefully managing your expenses, making smart housing choices, boosting your income with some type of part-time work, and navigating health care costs by waiting to retire by age 65, you can create a comfortable and fulfilling retirement.

But remember, the key is to start planning early and be flexible.

Your retirement might look different than you initially imagined, but that doesn't mean it can't be enjoyable and rewarding.

Obviously, if you want to take lavish, expensive vacations, help the kids or grandkids with college or leave a legacy, retiring with less than $500,000 may not allow you to do some of those things.

But a rich life is not about expensive things.

It's about experiences.

And you can create wonderful experiences on less money.

I think we all have gotten inundated with Instagram moments and all these lavish retirement lifestyles that people might have.

But that's not for everyone.

If it is something that is a goal of yours, to be able to do all the things you want to do, it's time to start saving more for retirement.

The key to a successful retirement on a smaller budget is early planning and realistic expectations.

With the right planning and lifestyle adjustments, you can retire on less.

So that's it for today's episode, How to Retire with Less Than 500,000.

And if you like this episode, please rate the episode, make some comments and hit the notification bell to get updated on future Wealth Decision Podcasts.

And please, if you could, share it with a family member or a friend.

My goal with the Wealth Decisions Podcast is to reach over 100,000 people by the end of the year in the Twin Cities and beyond so that people can make better wealth decisions to live a richer life.

If you'd like to schedule a discovery call with me, you can go to my website at momentouswealthadvisors.com and I'll spend some time to get to know you a little bit and find out if I might be able to steer you in the right direction or help you with your financial future.

And once again, thanks for listening and have a great weekend.

Listen to this episode on Apple Podcasts or Spotify


-Brian D. Muller, AAMS® Founder, Wealth Advisor

Momentous Wealth Advisors in a fee-only fiduciary advisory firm

Disclaimer: This material is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

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