Americans are all about that $1.5 million nest egg for retirement — living easy with golf trips and fancy cars.
But “Shark Tank” tough guy Kevin O’Leary says to hold on — you can retire with just $500,000 — a big difference from the $5 million he suggested last August.
According to Mr. Wonderful, the key is investing smartly and maybe scaling back your spending after you clock out for good.
“You can live off half a million bucks in the bank and do nothing else to make money,” O’Leary said. “Do not invest in your brother’s bar. Or a bowling alley, or a bar, or all that other crap, you’ll lose your money.”
But it depends on the type of lifestyle you want. According to Northwestern Mutual research, most Americans believe they need nearly $1.5 million to retire. That’s up 53% since 2020 and 15% from last year.
O’Leary’s logic is that you can make about 5% in fixed income with little risk, but if you only have $500,000, that amounts to $25,000 per year. If you are willing to ride the volatility, you can invest in equities, providing up to a 9% return or about $45,000 annually.
If you aim for a secure retirement, the 4% rule is widely used. The rule suggests retirees can withdraw 4% of their retirement savings annually for 30 years, adjusting the amount each year to keep up with inflation. Developed by financial adviser Bill Bengen, it’s based on historical data analyzing stock and bond returns, aiming to ensure retirees don’t run out of money.
Consider real-world spending. According to the Bureau of Labor Statistics, the average retiree over 65 spends roughly $52,141 annually. Rounding up for safety, you’d need at least $1.3 million saved to generate $53,000 per year using the 4% rule. That means if you had $500,000 saved, as O’Leary suggested, withdrawing 4% annually for 30 years would only provide a safe spending amount of $20,000 per year.
No matter how much money you have saved for retirement, consulting with a financial adviser can be important in reaching your financial goals. A financial adviser can provide tailored advice that aligns with your circumstances, aspirations and risk tolerance. Whether building an emergency fund, planning for retirement, investing in the stock market, or saving for a home, a financial adviser can help you navigate the complexities of financial planning, ensuring you’re on the right path to achieving your personal version of financial success.
