Could you retire comfortably with $250,000?
About 22% of Americans think that’s all they’ll need, based on a GOBankingRates survey conducted last month. Financial experts aren’t so sure.
“If someone made a lot of money to get the max Social Security but only managed to save $250,000, it means they spend a lot of money and would have to severely curtail their lifestyle to live on Social Security and $250,000,” said Carolyn McClanahan, a CFP with Life Planning Partners, Inc. of Jacksonville, Florida.
McClanahan noted that even combined with an average Social Security benefit, $250,000 in savings is only likely to produce $2,632 a month over 25 years, when inflation and other factors are considered. That would mean a difficult struggle for many Americans.
“With everyone’s situation being different, it will depend on how much you think you will be spending, your longevity, your goals and whether your savings and any other income sources in retirement will cover it,” said Rita Assaf, vice president of retirement products at Fidelity Investments. “For someone with $250,000 in savings, we would still look to see how much Social Security you are eligible to claim and when. By understanding this, it can help you understand how much you need to dip into your savings.”
Here are four signs below that you might be able to swing retirement with $250,000 saved up — and for a different perspective, check out this story on signs that $250,000 in retirement savings won’t cut it for you.
You Have Other Sources of Income
With $250,000 in savings alone likely to go quickly, having fresh income from elsewhere is huge.
“For people looking to retire soon, key questions to ask yourself include: What will my income sources be — Social Security, pensions, IRAs, etc.?” Assaf said. “What will my strategy be for taking income from my retirement accounts?
“Generally, essential expenses should be covered by guaranteed income sources like Social Security, pensions or annuities. These income sources usually keep up with inflation. Discretionary expenses should be covered by savings or investment income so that if the market changes, you can cut back without hurting your day-to-day.”
In the GOBankingRates survey, 76% of respondents planned to have Social Security as a source of income during retirement. About 27% expect to have some sort of pension, and around 8% are eyeing annuities.
Rob Williams, managing director of wealth management for Charles Schwab, said the ability to go back to work if needed could also be important, and not just for supplementing your savings.
“There are emotional reasons you may want to go back to work, as well as financial,” Williams said.
Your Mortgage Is Paid Off
When you’re trying to stretch retirement savings as far as possible, one of the last things you need is a bunch of outstanding debt. Owning your home outright with your mortgage in the rearview mirror is one sign you may be ready to retire with $250,000 in savings.
While you’re at it, you should make sure all outstanding debts are killed off, if you’re looking to retire with a less-than-robust nest egg.
Williams advises not to forget about non-mortgage housing expenses, however. Make sure you’ve accounted for ongoing repairs and other items.
“That’s one of the surprises for people,” Williams said. “Even without a mortgage, that doesn’t mean your housing expenses will go to zero.”
Your Healthcare Coverage Is on Solid Ground
What’s the status of your health coverage, especially if Medicare hasn’t kicked in yet? The unpredictable nature of healthcare makes locking this down essential, especially if your savings are limited.
“A solid retirement plan should also account for potential health care costs,” Assaf said. “According to the Fidelity Retiree Health Care Cost Estimate, a single person age 65 in 2023 may need approximately $157,500 saved after tax to cover healthcare expenses in retirement. And this cost doesn’t include long-term care expenses.
“Having a dedicated pool of monies for long-term care expenses may be an important consideration, as it will ultimately protect your retirement income. Healthcare expenses are often the hardest to predict, so if you have only $250,000 in savings, then it’s prudent to make sure you have a solid retirement plan that can be flexible enough to change.”
Your Portfolio Is Balanced and Has the Correct Priorities
Williams listed another key to successfully retiring with limited savings: Making sure your portfolio is built to withstand market downturns and other volatility.
He gave an example of retirees whose early retirement coincides with a market downturn. They’ll sometimes get spooked into selling more assets to reach retirement income goals. Their portfolios may have a hard time bouncing back.
Williams said investors should consider moving some assets into investments likely to weather market disruptions, funding expenses with cash and cash alternatives. And that’s just one batch of advice; financial professionals may be worth consulting for others.
“Make sure you have a portfolio that is positioned to protect and use your wealth, as well as to grow it,” Williams said.
