Here’s an example scenario:
You plan to retire at 60, just one year earlier than the average age, according toGallup data. You’ve placed your life expectancy at 80, so you need an income to carry you through 20 years.
The table below shows how much $400,000 would perform under various spending scenarios assuming an average annual return of 6% and a 22% federal tax rate:
| Annual spending | Is $400k enough? | Ending balance after 20 years |
|---|---|---|
| $20,000 | Yes | $357,740 |
| $30,000 | Yes | $27,585 |
| $40,000 | No | Savings run out after 13 years |
| $50,000 | No | Savings run out after 10 years |
Consulting with an experienced financial advisor can provide tailored advice to assess your retirement needs based on your situation. Match with a financial advisor below.
How long will $400k last in retirement?
The length of time that $400k can last you once you retire depends on how much you’ll spend each month as a retiree, your retirement lifestyle, and how much time you want your retirement income to cover.
The table below gives an idea of how long $400,000 will last based on different annual incomes. The calculations are based on a 6% yearly return and a federal tax rate of 22%.
| Annual spending | Years it will last | Total interest | Total withdrawals | Total taxes |
|---|---|---|---|---|
| $20,000* | Over 30 | $661,920 | $600,000 | $145,622 |
| $30,000 | 20 | $291,775 | $600,000 | $64,192 |
| $40,000 | 13 | $179,719 | $520,000 | $39,539 |
| $50,000 | 10 | $130,879 | $500,000 | $28,792 |
| $60,000 | 8 | $103,048 | $480,000 | $22,670 |
*The amounts for total interest, withdrawals, and taxes are for 30 years.
To figure out how much you need in retirement, you need to understand your spending habits, including how they’re likely to change by the time you reach retirement age.
Ask questions like the following, building a clear and sensible picture of your needs:
How many essential outgoings will I have each month as a retiree?
How much non-essential spending am I likely to do as a retiree?
Will I receive any other sources of income, likeSocial Security, that I can factor in?
Will I have any other financial obligations that I need to factor in?
Would I be willing to work part-time to supplement my retirement income?
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How muchincome tax will I pay if I have $400k in retirement?
It’s difficult to be precise about the amount of tax you’ll pay on your retirement income since so much depends on the specifics of your situation.
The best way is to consider the following:
Look at what form your retirement income takes –Some retirement savings accounts tax you when you deposit your money, such as a Roth IRA. Others tax you when you withdraw the money as a retiree, such as a traditional IRA or 401(k).Check whether your savings will be taxed or untaxed at the distribution point; this will strongly affect your ultimate tax burden.
Look at any other forms of income you may not have considered –Figure out your entitlement to Social Security and any other similar benefits and how these things will be taxed.Speak with a financial advisorabout how your investments will be taxed and whether they’ll be considered capital gains. Look at the whole picture of your finances as a retiree, leaving no stone unturned.
Calculate your total annual income and your tax liability –Using federal andstate requirements, figure out how much you will earn, on average, each retired year. Then, determine how much you’ll pay in tax. You’ll only be able to do this according to current rates, so while it won’t be 100% accurate, it will undoubtedly be a helpful barometer for your reference.
Can I retire with $400,000 and Social Security?
Incorporating Social Security benefits can significantly enhance your retirement income, making it easier to retire on $300,000.
The US Government reported that the average monthly Social Security benefit for retired workers in 2023 was $1,905, though individual amounts vary.
Keep in mind that while retirement is possible at any age, full benefits are only accessible when you reach your "full retirement age." For individuals born in 1960 or later, this age is 67. You can begin collecting Social Security retirement benefits as early as 62, but the amount will be reduced.
The tax you pay on Social Security benefits depends on your state of residence, and some states do not tax these benefits at all.
Is $400k above the average retirement saving in the US?
Looking at every working-age American, $400k is above the average as retirement savings amounts go.
TheEconomic Policy Institute(EPI) puts that figure at just under $100,000. But what happens when you narrow it down to Americans who actively have retirement savings, track them, and then sort them by age group?
$400k becomes either right on or just below the average. For example, according to theFederal Reserve, the average retirement savings balance among 55 to 64-year-olds is $408,420, rising to $426,070 among 65 to 74-year-olds.
Can you retire at 50 with $400k?
If you choose to retire at 50 and plan to spread $400,000 across 35 years up to a life expectancy of 85, you may struggle with a lower annual income.
If you can live frugally and make that monthly budget work, you can leave the workforce ten years earlier than average and relax in the peace of your golden years.
If this doesn’t seem possible, you still have a few options (short of working until the traditional retirement age):
Semi-retire at 50, but keepworking part-time, supplementing your income from savings.
Build up your $400k to a higher total between now and your 50thbirthday.
Can you retire at 65 with $400k?
If you decide to wait a little bit longer to retire, your $400,000 will stretch further and provide you with more income annually.
Not factoring in additional income from other sources or taking taxes into account, if you retire at 65 and plan to spread $400,000 across 15 years up to a life expectancy of 85, you’ll receive, at minimum, $34,000 annually. This is if you factor in 2% inflation and an annual yield of 6%. However, this figure doesn’t include taxes.
While expenses do reduce when you retire – your daily commutes grind to a halt, which means less money is spent on gas or metro tickets – you may end up spending more money on other areas, such as healthcare.
It’s important to consider all of these considerations when deciding when and how much money to retire with.
3 ways to increase your retirement savings
If you want to grow your retirement savings in your remaining working years, here are three tried and tested, expert-recommended methods you might like to try out:
Focus on financial literacy –Though you may have some understanding of investing, budgeting and saving, a trusted financial advisor can genuinely transform your level of financial literacy.
Complete a lifestyle overhaul –It’s easy to set up your life with the present at the forefront of your mind and the distant future barely a consideration. If this is you, you might need to re-assess your lifestyle and take a more whole-life approach.
Save in all the right places –This method has a double meaning. On the one hand, keep all the money you can by cutting non-essential spending. Simultaneously, save your $400k+ for retirement in a suitable account like a traditional or Roth IRA.
Get expert financial advice
It isn’t easy to save a considerable figure like $400,000, especially if you’re a working person on an average salary in a climate of increasing costs. You may be happy with this final figure or still want to grow and consolidate wealth ahead of your golden years.
For financial planning advice free of bias and filled with expertise, why notconnect witha qualified fiduciary advisor? They can deep dive into your finances and develop a retirement plan suited to your needs.Match with a financial advisor today.
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