Just shy of half a million dollars, $400,000 is nothing to sneeze at. It’s a significant savings, and you should be proud of it. To retire with $400,000 in the bank, you might consider downsizing to a smaller home, moving somewhere less expensive, or continuing to work part-time. These strategies will help your savings last longer and keep your nest egg safe, even during periods of high inflation.

How Earnings and Inflation are Impacting Retirement for Many Americans

In June 2022, inflation reached a staggering high of 9.1%—the highest jump seen since the 1980s. Since then, the rate has dropped, but it is still above the 2% average that indicates price stability. As of November 2024, the rate was at 2.4%, which means that Americans' paychecks are not going as far as they used to for everyday consumer items. In short, it’s more expensive to pay for groceries, gas, and other necessities.

These are some of the categories hit hardest, with percentages indicating year-over-year price changes:

• Juices and other drinks: 29%
• Beef steaks: 10.7%
• Sugar: 7.2%
• Baby food: 8.7%
• Peanut butter and other fats: 5.1%
• Electricity: 3.8%

Given the overall higher cost of goods, some find they need to cut back on retirement savings. In addition, the New York Times reported in 2023 that there has been an increase in hardship withdrawals taken out of 401(k) accounts. Ultimately, this has delayed retirement for many, with some people saying its entirely out of reach.

Even if you haven’t needed to withdraw from your account or pause saving, inflation has likely affected your retirement saving vehicles—different accounts weather inflation differently.

Social Security

While Social Security benefits are evaluated yearly to be adjusted against the cost of living, these adjustments have historically been seen as inadequate. The Senior Citizens League reported that seniors lost one-third of their buying power between 2000 and 2021. The League also noted that the cost of goods and services increased by 99.3% between 2000 and 2020, while the Social Security COLA adjustments only rose by 53%.

Note, also, that by waiting until you are older to take your Social Security benefits, you will receive more each month. When you take the earliest Social Security option, you dramatically reduce your monthly payout for the remainder of your life. Crunch the numbers to determine the difference between retiring at 60 with $400k or waiting until 65, 66, 67, or later.

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Pensions

Pension plans are typically tied to several of your last year's salary rates. If high inflation hits during the last few years of your working years, your final benefit amount may be lower as the calculation was made on pre-inflation salary. If high inflation hits after you retire, your payouts will be based on the salary you earned previous to inflation. It’s also important to note that private pensions often do not adjust for inflation at all—only state or local government plans.

401(k) and IRA Accounts

Investments and dividends don’t adjust for inflation, so the money invested in your 401(k) or IRA can be negatively impacted during periods of high inflation. For example: if you’re getting a return of 10% on your 401(k), but inflation hits 8%, you’ll only see a 2% gain on your investment. If you’re getting a return below 8%, your net gain will be negative. The typical target for a 401(k) is a 5 to 8% return (IRAs are typically between 7 and 10%), so when inflation rises above this, your 401(k) could take a hit. That said, 401(k) accounts are still good investment vehicles as they see a higher interest rate than many other types of accounts.

Even though the inflation rate is out of your control, there are some actions you can take to mitigate the effects of it on your retirement savings.

• Diversify: You shouldn’t hold only stocks or only bonds—make sure there’s a nice diversification in your portfolio holdings. Be sure to discuss your specific investments with a Certified Financial Planner.
• Adjust your planned spending: It’s always smart to assume there will be some level of inflation, and if you’re worried about a high inflation period hitting while you’re in retirement, adjust your budget accordingly and make calculations based on a higher inflation rate, such as 5%, rather than a lower one. Example: If you were planning to retire with $50,000 in annual retirement income, a 5% inflation rate would mean you’d need to give yourself a $2,500 raise starting in your second year.
• Pay off debts: Adjustable-rate mortgages and credit card debt should be paid off before you retire to prevent the rates from jumping during high inflation periods.
• Hire a Certified Financial Planner: Preparing and saving for retirement is not easy, but it’s a lot easier with a professional who can help you strategize and consider all of your future goals. Talk to a Retirable financial planner to go over your finances and set up milestones to help you reach your retirement goals.

Is $400k Enough to Retire in 2024?

Saving $400,000 for retirement is very impressive, but knowing whether it is enough for your retirement will depend on your lifestyle preferences, spending habits, health, and more. Once you’ve saved this much, it’s worth talking to a Certified Financial Planner to invest your savings so you can reap high returns to make your savings stretch as long as possible.

In addition, see where you can cut back on your spending to maximize your savings. See if you can:

• Sell your larger home and downsize to a smaller one
• Sell a car if you have more than one
• Move to a location with a lower cost of living
• Dine out less often
• Travel less often

Ideally, the rate of return on your investments is enough for you to live off of, so you never need to touch your principal.

With $400,000 saved and factoring in an average annual rate of return between 10–12%, you’ll have between $40,000 and $48,000 to live off of each year. If, though, there’s a slow year and the returns are low—let’s say 8%—you’ll only have $32,000, or you’ll need to dig into your principal, which will lower your overall returns for future years and prevent you from holding a nest egg of money in case of emergencies.

Ultimately, It’s up to you to decide if this is enough savings to live off of for the rest of your life—and indeed, some people do, either by downsizing or moving somewhere much less expensive—but it’s also wise to consider some of the significant costs you will likely see during retirement, such as:

Housing: Housing prices continue to increase; if you don’t own your home and are renting, you should expect to pay more for housing during retirement than you are now. In addition, keep in mind that your home maintenance costs will likely rise in retirement as you might not be as capable of doing specific tasks.

Healthcare: The average 65-year-old couple today will spend around $12,000 on health care in their first year of retirement. It’s possible this number could be lower for you if you are in excellent health, but it also could be much higher if you require the care of specialists or have any health issues that need to be addressed.

Transportation: If you own a car, expect gas prices to rise. If you don’t or cannot drive, you’ll need to factor in alternate means of transportation, such as taxis or car-sharing services.

It’s also vital to remember that inflation usually jumps about 1–2% per year and can jump to higher rates and reduce your spending power. Note that many places in the world are significantly less expensive than the United States, and many retirees choose to live in these cost-effective retirement destinations to make their retirement savings stretch. Consider Mexico, South America, and some parts of Asia if you seek a lower cost of living.

In the US, $400,000 is not what it used to be. According to the US Bureau of Economic Analysis, the cost of living jumped over 20% between 2010 and 2020. Even so, there are some places where $40,000 is a worthy annual budget. These locations have an average monthly rent under $900:

• Pittsfield, MA
• Louisville, KY
• Lafayette, LA
• Sioux Falls, SD
• Knoxville, TN
• Yakima, WA

When weighing where to move for retirement, research city and state income taxes, and understand which sources of retirement income are taxed in each location. Some states have no income tax at all, while others will tax all of your retirement income—including Social Security.

Factors to Consider When Figuring Out How Much You Need for Retirement

Many financial planners suggest reviewing these core categories to determine how much you need to save for retirement. While life will always be full of unexpected costs, having a sense of how much you need to live comfortably can prepare you to budget and plan smartly as you head into retirement.

Cost of living: Expect the cost of living to rise each year. Typically, inflation jumps between 1 and 2% each year, but since the COVID-19 pandemic, we have been in a period of high inflation that has exceeded that. This means that the cost of everyday goods, such as food, clothing, and movie tickets, will rise, and your dollar won’t go as far to pay for these items. Make sure to calculate your future income needs based on a higher inflation rate.

Taxes: You’ll likely pay lower taxes overall than you did when you were working—as you will be making less money—but each state has its own tax laws. Some, such as Colorado and Connecticut, tax social security. If you think you’ll be in a higher income bracket during retirement, consider opening a Roth IRA. These accounts require that you pay taxes upfront.

Keeping your current lifestyle: Do you want to live similar to the way you live now, or would you like retirement to be more luxurious, with more travel? Alternatively, consider downsizing. Many people sell their homes and live somewhere smaller during retirement to save on costs, while others want to stay in their homes and neighborhoods. In retirement, where you live won’t be tied to your career, so you’ll need to consider the best place to live and your overall lifestyle, given your budget and savings.

Your health: Health is a major consideration when deciding how much you need for retirement. If you are healthy, you may live a long life and need ample income to sustain you for those extra years. If you have a medical condition, you might need to see specialists and account for those costs and how much Medicare will cost you. Many retirees choose to purchase supplemental plans to get ample coverage, but that comes at a price.

Where you live: Tax considerations—both at the state and city level—will be a major consideration, as will the cost of housing and overall cost of living. You should also consider if you live somewhere that requires you to drive most places, as transportation is another major cost factor.

Your income: Beyond your Social Security, you should take a look at your various income sources. You might have rental income property, a hefty IRA, or other investment vehicles to pay for retirement. Some retirees enjoy work, so instead of retiring completely, they take on a part-time job to supplement their monthly pay. The other side of income is spending—make sure you do a deep dive into your spending and calculate where you can cut back during retirement.

How to Retire on $400K by Age

As you’re figuring how much your Social Security payout will be, it’s important to look at what $400,000 in retirement will look like, divided over a number of years. The below table looks at the average life expectancy of 77, but you could live much longer, which will reduce this even further.

Frequently Asked Questions

You asked. We answered.

Can You Live Off Monthly Interest on $400,000?

If your annual returns are 5%, you would be working with $20,000 or $1,666 per month. Considering the average cost of a one-bedroom in the US is $1,487, this doesn’t leave you with much for other expenses. To make $400,000 work for your retirement, you should cut back on spending and consider moving somewhere with a lower cost-of-living. You might also want to wait to collect your Social Security benefits—if you wait until age 70 to retire, you will receive the maximum benefit, which will significantly pad your take home income.

Can A Couple Retire On $400,000?

Having to stretch $400,000 between two people will definitely require significant financial planning and strategy. If you are both in excellent health, that means you may live longer, so the funds would need to stretch for additional years. If you suffer from any kind of medical condition, you’ll need to factor in your healthcare costs. Ideally, you and your partner find ways to cut back on spending to make $400,000 work. One of you might also decide to continue working on a part-time basis to keep some extra cash coming in. Make sure to calculate how much you will have from your Social Security benefit as well as the local and state income taxes you will be subjected to.

Can I Retire at 50/55/60/65 with $400,000?

Deciding when to retire will require a close look at your current lifestyle, the lifestyle you wish to have during retirement, and your current expenses. The best way to determine whether or not what you have saved is enough is to talk to a Certified Financial Planner; they can review your investments and make suggestions for ways you might be able to cut down on spending, allowing you to retire at the age you wish to.

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