At some point, you will go from building your nest to living from the nest. For many, this is not an easy transition. Maybe you haven’t hit a “magic” retirement number so your savings are enough to last you? By determining how much you can spend each year, you can make a financial plan for retirement so that you feel as comfortable as possible.

Don’t miss out

$500,000 in retirement savings is a reasonable nest egg that many may still consider too small to retire on. Baby boomers think they’ll need $990,000 to retire comfortably, right Northwestern Mutual 2024 Planning and Progress Study. When all US adults were surveyed for the same study, that number rose to $1.46 million.

However, these figures are far from reality. In the Northwestern Mutual survey, baby boomers say the amount they currently have saved for retirement is $120,300. And when respondents from all generations are included, that amount drops to $88,400.

Data from the Federal Reserve’s 2022 Survey of Consumer Finances (SCF) is somewhat better, with the median household retirement account balance for Americans ages 65 to 74 at $200,000. But that still falls short of what most Americans think they will need.

How much should you spend in retirement?

Clearly, there are many 65-year-olds who retire with less than $500,000 in savings. So how much can I spend per year?

A popular rule of thumb for withdrawing from a retirement account is known as the 4% rule, which aims to spread savings over a 30-year period and is based on a balanced portfolio of stocks and bonds. Withdraw 4% of it in the first year and then, in subsequent years, withdraw that inflation-adjusted dollar amount. For a $500,000 portfolio, that would mean $20,000 to spend in the first year.

There are other similar approaches you can consider, such as the portfolio percentage strategy and the fixed dollar withdrawal strategy. The bucket strategy involves dividing your retirement savings into three buckets for different periods of your retirement. Something Vanguard researchers have invented for people with retirement horizons longer than 30 years is dynamic spending strategy. The website says that “this approach allows you to spend more when markets perform well and spend less when they don’t. spending the “floor”.

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Of course, $20,000 a year isn’t much to live on. Fortunately, most US retirees also receive Social Security benefits. The average monthly Social Security benefit for retired workers age 66 in 2023 was $2,499.41, according to Social Security Administrationwhich is an annual amount of $29,993. Combined, the two sources would equal $49,993 per year. But is it enough?

While there are a number of ways to determine how much you’ll need in retirement, a general rule of thumb is to aim for 80% of your pre-retirement income. The median annual salary for Americans 65 and older is $58,292, according to US Bureau of Labor Statistics. Eighty percent of that would be around $46,000.

How to spread your nest

A retiree with $500,000 in their portfolio would benefit from having a budget they can stick to and looking for ways to save money where they can.

They have lots of options to stretch their dollar, from more extreme measures (like moving to a lower-cost location) to smaller changes (like taking public transportation more often instead of driving ). Groceries are a major expense for most households, so having a meal plan, eating out less and checking flyers can make a big difference. Little things like canceling unused internet or magazine subscriptions, reducing your cell phone bill, and skipping the muffin when you buy a coffee can add up.

Although many Americans think they need much more to retire, a nest egg of $500,000 can still lead to a comfortable retirement. It might be worth consulting a financial planner to help you get the most out of your eggs.

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This article provides information only and should not be construed as advice. Offered without warranty of any kind.