Kevin O'Leary Says It Is Possible To Retire With $500K and No Extra Income - Here's How

More people are increasingly paying attention to retirement planning, as older millennials near 45 and GenZ are starting serious financial planning earlier, with some planning to retire by 60. The growing trend of more conscious spending and saving for the future amid looming risks of Social Security benefits reductions within a decade has led to many speculations on how much money you need to comfortably retire with.

According to a Northwestern Mutual 2024 Planning and Progress study, US adults believe they require $1.46 million to retire comfortably. While future forecasts on retirement costs like medical bills and rising household expenses are possible, in an interview on his official YouTube channel, entrepreneur and investor Kevin O'Leary said the retirement corpus you need will mostly depend on your investment and lifestyle choices.

"Do not invest in your brother's restaurant," he advised. "Or a bowling alley, or a bar, or all that other crap. You'll lose your money." Instead, he thinks surviving with $500,000 without extra income can be possible with the right investment approach.

Balance of Fixed-income Instruments With Equities

O'Leary highlighted that one can achieve 5% returns with low-risk, fixed-income securities or up to 9% from equities by accepting exposure to market volatility. Achieving these estimates is plausible given that the 10-year US Treasury bond yield stood at 4.33% on July 5, and the S&P 500 has delivered 10.5% in average annual returns through March 2023.

A 4.33% yield on $500,000 will generate a yearly income of $21,650, while 10.5% returns amount to $52,500 annually. O'Leary's 9% returns projection would yield under $50,000 per year. Surviving on these numbers means you have little room for unexpected expenses and rising living or medical costs.

It is concerning that a large portion of these projected incomes on $500,000 savings would go towards medical expenses alone over time. According to a report from RBC Wealth Management, experts think the annual, out-of-pocket healthcare costs of a healthy couple at age 65 is almost $5,700 per person.

Furthermore, the lifetime cost of care for a healthy 65-year-old is over $404,000, excluding long-term care bills, projected to be as high as $100,000 annually. For many, living on $50,000 a year can be a major downgrade to their lifestyles and potentially risky during unforeseen situations.

Make Your Portfolio Big Enough To Benefit Long-term From The 4% Rule

O'Leary's recommendations for surviving with $500,000 in retirement are unrealistic for many people. A bigger retirement fund may be required to support a decent lifestyle and tackle age-related hurdles.

Financial advisor Bill Bengen devised the "4% Rule," which states that you can safely withdraw up to 4% of your retirement portfolio's value in the first year and continue to withdraw the same amount adjusted for inflation in the subsequent years. This way, Bengen found that most retirement savings would last over three decades and, in some cases, 50 years.

For instance, if you have $2 million in retirement savings, you can safely withdraw up to 4% or $80,000 in the first year of retirement. Next year, considering that inflation jumped by 2%, you can adjust for inflation to withdraw $81,600. In year three, you take the prior year's allowed withdrawal amount and adjust it for inflation. Ultimately, you strive to retain the purchasing power of the 4% amount withdrawn in the first year of retirement.

Remember that the 4% withdrawal applies only in the first year, following which inflation influences the amount withdrawn. The 4% rule was founded on decades of historical market data on returns and volatility and may offer a more sustainable approach to retirement planning.