Key Points
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Establishing a safe withdrawal rate is a key step.
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Supplementing your nest egg takes the pressure off.
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Reducing withdrawals during market downturns is especially important.
If you’re retiring with $500,000, you’re in a better position that many older Americans. As of 2022, the most recent year there’s data available, the median retirement savings balance among Americans ages 65 to 74 was $200,000, according to the Federal Reserve. With a $500,000 IRA or 401(k), you have 2.5 times as much savings.
Still, a $500,000 nest egg could run out easily if you aren’t careful or if you end up living a much longer life than expected. So it’s important to do what you can to make that money last. Here’s how to avoid depleting your savings in this situation.
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1. Establish a safe withdrawal rate based on how your portfolio is allocated
A big part of making sure your money lasts is coming up with an actual withdrawal plan rather than taking distributions at random. And that approach should hinge on how your portfolio is invested.
If you have a fairly equal mix of stocks and bonds, you can consider using the 4% rule. If you’re more heavily invested in stocks, you can potentially go higher. And if your portfolio is mostly bonds, a withdrawal rate closer to 3% may be more appropriate.
2. Supplement portfolio withdrawals with other income
The less reliant you are on your savings, the less you should need to tap your IRA or 401(k) each year. To that end, it pays to find income sources to supplement your withdrawals.
Part-time work is one option worth considering. You can take a job with a preset schedule or join the gig economy for more flexibility.
Boosted Social Security benefits could also be yours if you delay your claim past full retirement age. Those monthly checks increase 8% for each year you wait, until you reach age 70. And larger checks could mean tapping your savings less.
3. Reduce portfolio withdrawals when the market is down
Taking withdrawals from your savings when the market is down often means having to sell assets at a loss. When you do that rather than leave those assets alone, they don’t get a chance to recover.
To stretch your savings and reduce the risk of running out, scale back on spending during periods of market decline, particularly in discretionary categories like travel and leisure. The less you have to take out of your savings, the easier a recovery should be.
The idea of running out of money in retirement is scary. And that risk exists whether you’re starting off with $500,000, less, or a whole lot more.
While a $500,000 nest egg isn’t huge, it’s also far from negligible. If you manage your withdrawals wisely and come up with a solid income strategy, you can reduce the chances of seeing your savings get whittled down to $0.
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