It’s possible that knowing you can make $250,000 endure for decades in retirement will come as a surprise to you.
Although you’ll need a thorough plan and enough money from Social Security, it is conceivable to retire with this meager sum. These are the things to think about.
How Long Will $250,000 Retirement Savings Last?
Your expenses, investment return, and withdrawal technique affect the lifetime of $250,000 in retirement funds.
Your retirement budget influences your income. Knowing your lifestyle lets you calculate monthly expenses. You can compare your income and expenses.
If you paid off your mortgage before retirement and don’t travel, your budget will be lower. Housing costs would be property taxes, utilities, and repairs.
These costs often total $9,000 per year. But, prices change depending on where you are.
Your lifespan also matters. If you retire at 67 and live to 80, you’ll have a 13-year retirement. To estimate retirement costs, multiply your annual cost of living by 13.
The cost of living rises annually due to inflation, so this number is less precise. Adding 3% to your annual expenses each year to imitate inflation will help you be more precise.
A budget of $40,000, for instance, would rise to $41,200 the following year, and so on. The similar living costs you had in year one would cost $58,741 in year three.
Next, healthcare costs are an unavoidable part of retirement. You’ll incur yearly medical bills, including Medicare premiums and out-of-pocket payments. Thus, experts suggest budgeting 15% of your income for medical expenses. Hence, a $250,000 nest egg would set aside a minimum of $37,500 for this cost.
Read more: How Big Is The Child Tax Credit In 2023 And How To Qualify?
Rate Of Return
How long a $250,000 nest egg will endure depends on your rate of return as well. For instance, a 3% return generates $7,500 annually, whereas a 7% return generates $17,500.
The importance of maximizing your rate of return cannot be overstated because this tiny percentage change can add several additional years of income. The following retirement accounts allow you to accomplish this:
- More returns may be obtained by investing through an IRA or 401(k). For instance, from its inception, a portfolio invested in the S&P 500 index has generated an average yearly return of 10%. $250,000 can provide $16,250 in income each year, assuming 3% inflation and 0.5% management costs. As a result, you’ll take out less of the principal and your money will last longer.
- After you retire, an annuity may offer lifetime income that are guaranteed. In other words, you can buy a contract for $250,000 that will guarantee you a monthly payment for the rest of your life. Your monthly payment is reduced when you purchase an annuity with an instant payout. Delaying payment, on the other hand, will raise it. When you purchase the annuity at age 45 and decide to retire at age 65, you will start receiving $2,475 every month.
- Bank accounts are now feasible options for retirement savings thanks to rising interest rates. Interest rates on high-yield savings accounts are specifically 4%. You get money without putting it at risk in stocks, real estate, or other assets, which is an advantage.