How to Retire on $500,000

If you're wondering how to retire on a small nest egg, or how to simply make more income from a larger investment, consider these seven specialty high-yield investments.

A tiny pink piggy bank sits in the middle of a bird's nest that suggests an insufficient nest egg.
(Image credit: Getty Images)

If you ask most financial advisers how to retire on a half-million dollars, they’ll likely say it can’t be done.

Many financial advisers point to the “4% rule” (also the “Bengen rule”) for tax-advantaged accounts such as 401(k)s and IRAs. The 4% rule says you can draw up to 4% of your nest egg’s value in your first year of retirement, then add inflation to the prior year’s total and withdraw that each subsequent year, for 30 years, without worrying your money will run out. William Bengen, who first proposed the rule in 1994, later updated that figure to 4.5%.

The median personal income in the U.S. is $33,706 per year (opens in new tab), as of 2018 data. Not including Social Security, you’d need about $750,000 in your retirement account(s) to hit that number, if you followed this rule. Depending on where you live, as well as the lifestyle you want to maintain, you’d probably need to start with more. That’s why many advisers point even higher, stating figures between $1 million to $1.5 million as ideal retirement targets.

Brent Weiss, head of planning at Facet Wealth in Baltimore, reminds us there is no one-size-fits-all retirement solution. “In retirement, we face a unique set of risks and many are unknowns,” he says. “From inflation to healthcare costs to longevity, we need to have a plan for them today.” Among those issues is that not every family has as much saved as they need. That’s OK. If you’re wondering how to retire on less than what the traditional wisdom says you need, you have a few options.

These seven high-yield investments may allow you to retire well on a nest egg as small as $500,000. One other aspect of the 4% rule is that any dividends or bond interest you receive diminishes the amount you need to withdraw for your annual income. These seven investments should provide more across dividends and distributions* alone than the U.S. median personal income.

Data is as of Sept. 22. Taxes are not factored into target calculations. Tax considerations will vary widely, with some investors paying no taxes, depending on several factors, including what type of retirement account you have (Roth IRA, traditional IRA, 401(k), etc.), the type of income you are collecting, your level of annual ordinary income, what state you live in and more. *Distributions made by closed-end funds are a combination of dividends, interest income, realized capital gains and return of capital.

Michael Foster
Contributing Writer, Kiplinger.com
Michael Foster is the Lead Research Analyst for Contrarian Outlook, where he writes CEF Insider. He has written on high-income assets, dividends, closed-end funds and exchange-traded funds for a number of publications including Forbes, Bankrate and SeekingAlpha. Michael finished his PhD in 2008 and has been advising investors since 2011.