For many of us, retirement can’t come soon enough. The promise of caravanning holidays and afternoon naps sounds like a dream come true. But whatever your plans might be, it can be quite difficult to figure out how much money you need when the time comes. Let’s take a look to see if you really can retire at 60 with £500,000 in the bank.
Quick summary: Can you retire At 60 with £500k?
If you are mortgage or rent-free and are willing to live a fairly minimal lifestyle, £500k should last you well over 30 years. This time can be more than halved for those who like to spend a bit more. However, this doesn’t take into consideration your State Pension or the income you can make from that £500k.
The sad fact is that finishing work at 60 is now considered an early retirement. Thanks to changes by the UK government, 68 (or 66 and 67 in some cases) is now considered the full retirement age and when you can take your state pension. But if you have some money put away, would it be possible to retire a little earlier? What amount of money would you need to retire at 60?
Let’s take a look to see if £500k is enough money to see you through your twilight years.
How to reach that £500k pot
Half a million pounds might sound like a lot of money, but it’s certainly a reachable retirement savings goal, especially if you start a retirement plan early. If you don’t have a large annual salary, it might be a good idea to take on a few side hustles which can help you make extra money. The more sources of income you have, the better.
You may consider starting an investment portfolio. Investing, in the long-term, tends to give you far better returns than compared to a regular savings account and is a good passive income. Any money you make can be immediately reinvested.
And as much as we don’t like to talk about it, it’s worth factoring in a possible inheritance from family members. Sadly, it’s not unusual for people in their 50s and early 60s to receive a lump sum from a recently deceased close relative.
How to make your money last longer
Of course, once you reach your first year of retirement, you’ll need to do something with your £500,000 if you want a healthy retirement. The more you earn, the longer you can have a comfortable retirement.
Placed into a high-street savings account, the interest will be in the region of 0.25%, which would be about £1,250 per year. There are fixed savings accounts available that pay around 3% plus and will tie up your savings for anywhere between 1-5 years. At 3% in interest, that equates to £15,000 per year.
If you’re looking for potentially greater returns, you might want to invest. According to Investopedia, the average stock market return from the top five American companies has been 11.88% since 1957. That would earn you £59,400 per year (not including income tax). If you did make that kind of money, you would have complete financial independence. All of your living expenses would be covered and you would never have to touch that £500,000.
But before you throw all of your money into shares, you need to know that investing should be made with the long term in mind and the value of your investment can go down, as well as up. A couple of bad years could see your nest egg take quite a beating. The last thing you want to do in your retirement years is to desperately seek out extra sources of income.
Why not take a look at how much my Fidelity account has returned from my investments, which has been close to 10%.
If your £500k is coming from a pension pot, you could purchase an annuity. This will give you a guaranteed income for the rest of your life and a tax-free lump sum. How much you receive depends on a lot of different factors. But a quick look at Aviva and a £500k annuity would pay a £125,000 lump sum and an annual payment of £22,118.
Seek advice
Of course, everybody’s financial situation is different and so an annual income that may be suitable for a relative might not be suitable for you. If you’re unsure what is best for you, speak to a financial advisor about your retirement fund. They will be able to give you pointers on how best to manage your retirement portfolio, such as ways to increase the money you have coming in whilst minimising your taxable income.
Financial advice may cost you a small sum, but it’s often the best way to make the most of your money.
How much will you need in retirement each year?
Plenty of studies out there discuss how much we need per year when we reach retirement. However, I tend to take them all with a pinch of salt. They’re generally created by pension and investment companies keen on you to send more money their way. Because of this, I find that they’re more likely to inflate the figures you need.
With that said, they’re still useful for establishing a general idea, but only you can really know how much you spend each year.
A recent article by Retirement Living Standards, based on independent research by Loughborough University, showed how much people needed in retirement.
It concluded that a single person who wanted a minimum lifestyle (with a little leftover) would spend £14,400 per year. This increases to £22,400 for a couple.
For a moderate lifestyle, which may include an extra holiday, a decent car and meals out, this increases to £31,300 for a single person and £43,100 for a couple.
For what is deemed a comfortable lifestyle, which includes two holidays per year, a better car and plenty of money for eating out, a single person would need £43,100 and a couple, £59,000.
| Minimum £14,400 | Moderate £31,300 | Comfortable £43,100 | |
| House work | DIY of £100 per year | Some help with maintenance and decorating each year | Up-to-date kitchen and bathroom every 10/15 years |
| Food shop | £50 per week on groceries £25 a month on food out £15 per fortnight on takeaways | £55 per week on groceries £30 a month on food out £10 per week on takeaways £100 per month to take others out | £70 per week on groceries £40 a month on food out £20 per week on takeaways £100 per month to take others out |
| Transport | No car £10 per week on taxis £100 per year on rail | 3 year old car replaced every 7 years £20 per month on taxis £100 per year on rail | 3 year old car replaced every 5 years £20 per month on taxis £200 per year on rail |
| Holidays & leisure | 1 week UK holiday Basic TV & broadband 1 streaming service | Fortnight 3* all-inclusive holiday in the Med Long weekend break in the UK Basic TV & broadband 2 streaming services | Fortnight 4* holiday in the Med with spending money 3 long weekend breaks in the UK Extensive TV & broadband package |
| Clothing & footwear | £630 every year | £1,500 every year | £1,500 every year |
| Gifts | £20 for each birthday and Christmas present £50 charity donation | £30 for each birthday and Christmas present £200 charity donation £1,000 supporting family members | £50 for each birthday and Christmas present £25 monthly charity donation £1,000 supporting family members |
It’s important to note that the article does not cover housing costs. Many people, when they reach 60, will either still have a mortgage or will be paying rent. And with the average rent now over £1,000 per month, you may need to factor in around an extra £12,000 per year.
How long will £500,000 last?
| Minimum lifestyle | Moderate lifestyle | Comfortable lifestyle | |
| Number of years £500,000 will last for a single person | 34 years | 16 years | 12 years |
| Number of years £500,000 will last for a couple | 16 years | 12 years | 8 years |
| Number of years £500,000 will last for a single person (plus annual rent of £12,000) | 19 years | 11 years | 9 years |
| Number of years £500,000 will last for a couple (plus annual rent of £12,000) | 14 years | 9 years | 7 years |
State Pension
So, depending on the lifestyle you choose and your housing costs, £500,000 could last you anywhere between 7 and 34 years.
But on top of your retirement savings, don’t forget you’ll also receive a State Pension at 66, 67 or 68, depending on your current age. This stands at £203.85 per week (£10,600.20 per year), although how much you actually receive depends on your National Insurance record.
Once your State Pension begins, you can rely less on your half a million.
So, can you retire at 60 with £500k?
If you own your own home, have no high-interest debt and plan to live what is considered a minimum lifestyle, then the £500,000 should keep you going quite comfortably. If you want a moderate lifestyle, this may be possible once you start receiving the State Pension.
But if you’re looking to live the life of Riley and visit all of those countries on your bucket list, £500k won’t get you that far.
And more bad news…
If you’re 20 and reading this, you’ll be sad to hear that £500,000 won’t be enough when you hit 60. If inflation runs at an average of 2.5%, then you will need to have £1 million stashed away to have enough to retire at 60.
Good luck with your retirement plans!