How you can Retire with Just $100K.

Important Points to write it down if you are planning to retire with $100K.

• If you retire with $100,000, it is indeed difficult to manage your annual income (depending upon your year of retirement.)
• If your annual spending is $20,000, these $100k will last you for only five years.
• How much you need to retire depends on various factors like retirement age, lifestyle, other income sources, and expected expenditures.
• If you begin saving little early (From your 30), the more likely you’ll be to end up having more than $850K at the time of retirement.

Let’s first calculate how much you need for your monthly expense.

It’s important to fund your IRA or 401(k) throughout your career so that you can retire with a nice chunk of money. According to Northwestern Mutual, People (workers of all ages) in their 60s likely to receive $89,300 via average retirement savings plan. This indeed a National Average for Retirement saving in the States. Whereas the average balance is $112,500 for other professionals.

According to the Federal Reserve, 60% of Americans do not know if they’re on track or not.

Why $100,000 is not enough.

$100k savings balance could do a lot for you in the context of your emergency fund. It may consist of Health, Gadget, Holidays, Travel, Fee, or any other emergency. But in the context of a retirement sum, it’s unfortunately not a lot of money. Though we are always emphasis to explore new places and travel across different countries after retiring.

There is a rule of 4% a year, which most financial expert think was a good way to plan our savings. Experts says more about Frugal way of living which is good way to lead a health life at minimalist cost. In that case lower withdrawal rate, like 3%, would be enough.

Now Let’s start your planning with $100K and 4%, for $100,000 results in $4,000 of annual income. The average Social Security benefit as of earlier this year was approx. $1800 a month.

So, if you are entitled to get that benefit and you’re only getting $4,000 a year out of your Retirement corpus. Then you’re looking at an annual income of about $26,000.

It’s hard to live with that amount even if your paid up for your home and started a frugal living.

If you retire at 50 with $100k in Retirement Saving. 

Major reason why people are not having more money than $100K is they don’t start saving and investing early on in their careers. They generally wait until their 40s or 50s to begin their growing long-term wealth.

But if you can develop some hobbies which a millionaire having then you may find that you’re able to easily save more than $100,000 as a retirement corpus.

To achieve this, you need to be modest which doing monthly contributions to your IRA or 401(k) plans. Systematic, Little Early and consistence is the key to achieve those numbers.

Take Example:

Let’s say you start saving for your retirement at the age 27 and retire at age 50. Let’s also assume you’re only able to save $500 a month. Will it affect your retirement journey.

Let’s take the estimates.

These figures represent different scenarios for annual withdrawal amounts, corresponding monthly payouts, and the estimated duration for $100,000 to last in each case.

The stock market (S&P 500) has delivered an average annual 10% return over the past 50 years. So, if you’re able to snap that same return, you’ll end up with almost $484,000 which is way bigger amount than $100K. if you do till 60 then corpus amount is $850,000.

That left you with an annual income of about $35,000 alone from your savings.

Now if you follow the 4% withdrawal rule. Plus Add in another $20,000 as your Social Security benefit, you could be in decent shape.

If you retire at 60 with $100k in Retirement Saving. 

This can be possible, but difficult. Now image, if you retire at 60 with $100k in retirement savings and plan for a life expectancy of 80 years, you’ll need that money to keep you drifted for 20 years. Your monthly income in this case will be $417/Month. If you have any other possible sources of retirement income such as Social Security. then this total monthly value increase to $2000 a month. Provided you are doing decent investment to your IRA or 401(k)

This could also be increased If you can invest some of that retirement corpus as a retiree and increase your wealth over time. Still, it could also be lower provided you need to bear the cost of medical bills & other. Your monthly expense at 60 will be Food, House maintenance (Electricity, House help, Water) and Medical.

Some people retire at 60 without a realizing that they don’t have enough savings to do so. There is a way this Retirement corpus could be higher if you are doing early investment or running an alternate business, or if your children are taking your care.

How much Income tax applicable to retirees with $100k? 

There are seven main Income tax brackets you will fall into which are 10,12, 22, 24, 32, 35 and 37 per cent. If you’re hoping to spend your $100k across 20 years of retirement, that’ll only be around $5,000 per year. In that case you come under lowest Income Tax bracket, and you taxed at 10 percent. The top income tax rate comparatively is at 37 percent.  

You can refer to this numbers as well.

Here is a simple table summarizing the income tax rates for different income ranges. Make sure to consult the latest tax regulations for accurate information.

Conclusion

Still retirement with $100,000 in savings is far better than not having any Retirement Corpus at all. The Harsh reality is that $100,000 just isn’t a lot of money. You cannot plan your next 20 year with this alone. It will last for only 4-5 Years. I personally recommend you start investing in your IRA or 401(k) as early as you can.

Best tips for increasing your savings. 

If you’re going to retire with $100k but there are still some years off your planned retirement age. Then you should consider how to increase your savings in your remaining working years.

Look into

1. Automated savings – Remember your every Spare penny will add up over time rather than wasted in the moment. Setting up an automatic payment into savings account once a week or a month can ensure that you’re building your pension wealth consistently.
2. Improving your financial literacy – If you are not aware of your financial literacy, connect with an experienced advisor and discussing everything that could transform your approach to money and budgeting. 
3. Investing – For Everyone, Suitable investment opportunities are available whether you’re in your 40s, 50s or 60s. Investing sensibly in stocks, Crypto, shares, Bonds, or even in something called tangible like real estate. This will help to offset the inflation and could significantly increase your savings. 
4. Opening accounts designed to grow – Invest into your IRAs or 401(k)s this way you should have some retirement savings products to your name. These products tend to benefit from better interest rates and might be helpfully to get tax advantaged. 

As you are young to start thinking about your retirement. However, it’s never too early to start saving for retirement. You will never regret those decision.