I’m 65, itching to retire but only have $500K saved. I want $2K/month plus my Social Security — how can I swing this?
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Option 2: Income investing
An alternative to gradually drawing down retirement savings is leaving the balance invested in income-generating assets. The beauty of this strategy is that you get paid while keeping your money fully invested. But there are also drawbacks.
For Darren to generate $2,000 a month from $500,000 invested, he’d need his savings to yield 4.8% annually — at least while his balance remains at half a million. That’s not terribly steep but may require taking a more moderate risk approach.
The safest options, such as government bonds, high-yield savings accounts and large, reliable dividend-paying companies whose goods or services are constantly in demand and likely to remain so, such as Coca-Cola and Johnson & Johnson, don’t generally pay out that kind of income. That leaves investments more susceptible to price and payout fluctuations, which isn’t ideal when you’re relying on them to keep you afloat.
A safer bet could be to implement a hybrid approach, targeting a lower yield while slowly drawing down retirement funds to make up the difference.
Option 3: Work part time
If continuing to work full time isn’t an option, Darren might consider working fewer hours for the same company or perhaps doing something else, like freelancing, consulting, tutoring or even taking a few shifts at a local shop.
It doesn’t have to be much. Even if the job brings in $1,000 a month, that still halves his extra income need and the strain on his savings.
In this scenario, Darren could feasibly live off his new paycheck, Social Security and income from his investment portfolio without potentially withdrawing a cent. Then, by the time he fully retires his savings ought to be worth more, thanks to capital appreciation, and will have fewer years to last.
Option 4: Tap home equity
Darren could also use his home to plug his shortfall. When you own property, it’s possible to extract money from it. Options include:
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Selling and downsizing.
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Moving to a cheaper city or state.
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Renting out a room or a floor in his home.
If none of those options are palatable, Darren could consider a reverse mortgage, which allows homeowners age 62 or older to convert part of their home equity into cash that doesn’t need to be repaid until they move out or pass away. But, weighing the drawbacks here, including declining equity and possible higher interest rates, is key.
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Schroders (1); AARP (2); F&G Annuities & Life (3)
This article originally appeared on Moneywise.com under the title: I’m 65, itching to retire but only have $500K saved. I want $2K/month plus my Social Security — how can I swing this?
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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