The effects of retiring without a clear and suitable retirement plan can be disastrous, as borne out by the fact that Americans are filing for bankruptcy in ever-increasing numbers.
Since 1991, the number of individuals filing for bankruptcy has doubled in the age group of 65 and above.
After working hard all your life and having created a retirement pot, of say, $500,000, the question on your mind might be if it is sufficient to live on comfortably.
A lot of factors, including the cost of your lifestyle, the age at which you retire, the rate of inflation and other assets available to you, will determine if $500,000 is enough to retire on.
Below you will find five important tips on how to retire on $500,000.
Create a retirement budget
A retirement budget is the best way to keep a track of all your potential expenses in retirement.
A retirement budget worksheet with your projected average monthly expenses can help you determine the amount of money you may need in retirement.
Figure out a housing strategy
For most Americans, housing is by far the highest monthly expense. There are a lot of factors to keep in mind for your housing in retirement, such as downsizing from your current house, paying off your mortgage early, moving into a condominium, or moving into a retirement community.
There is the additional option of joining housing communities or senior apartments which also prepare meals for the retirees.
Plan for healthcare expenses
Your projected healthcare expenditure in retirement is a critical consideration for your retirement plan.
While Medicare covers the cost of your health care only after 65, you might have a gap in your insurance coverage if you plan to retire earlier. In that case, buying health care coverage could cost you a lot.
You need due diligence and proper planning as taking care of healthcare costs in retirement are crucial.
Determine retirement income
Once you have prepared an estimate of your expenses in retirement, you also need to formulate your income strategy and the ways to supplement it.
Prepare an estimate of your retirement income and consult with a financial planner to work out ways to boost your retirement income in the future.
Analyze all your sources of income, including rental income, savings, or income from a part-time job you might take up in retirement.
You can support your life in retirement with multiple sources and income streams, such as Social Security benefits, pensions, and the earnings you may generate from the $500,000 you have saved up.
Calculate retirement taxes
While at first the $500,000 you are retiring on might seem a lot of money, taxes on withdrawals can be a big factor in calculating how long will the pot last.
You will need to plan to cater to your expenses as well as to pay taxes.
There are several ways to lower your tax payments in retirement. You could try to take care of a portion of your healthcare expenses by setting up a health savings account.
Another way is to set up a Roth IRA that can make your retirement withdrawals tax-free.