Kevin O’Leary Says It’s Possible to Retire on $500K and No Supplemental Income – Here’s How

More and more people are paying attention to retirement planning, as older millennials nearing 45 and GenZ are starting serious financial planning earlier, with some planning to retire by 60. Growing trend and more conscious spending and saving for the future amid possible risks of reduced Social Security benefits within a decade has led to much speculation about how much money you need to retire comfortably.

According to a mutual Northwestern 2024 Planning and Progress STUDY, American adults believe they need $1.46 million to retire comfortably. While future projections for retirement costs such as medical bills and increased household expenses are likely, in a interview on his official YouTube channel, entrepreneur and investor Kevin O’Leary said that the retirement corpus you need will largely depend on your investments and lifestyle choices.

“Don’t invest in your brother’s restaurant,” he advised. “Or a bowling alley, or a bar, or all that other crap. You’re going to lose your money.” Instead, he thinks surviving on $500,000 with no additional income can be possible with the right investment approach.

Equity fixed income instruments balance

O’Leary pointed out that 5% returns can be achieved in low-risk, fixed-income securities or up to 9% in stocks while accepting exposure to market volatility. Achieving these estimates is plausible given that the yield on the 10-year US Treasury bond stood at 4.33% on July 5and the S&P 500 has delivered 10.5% in average annual returns until March 2023.

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

It’s troubling that a large portion of this projected income with $500,000 in savings would only go toward medical expenses over time. According to one report by RBC Wealth ManagementExperts estimate that the annual health care costs of a healthy couple at age 65 are almost $5,700 per person.

Additionally, the lifetime cost of care for a healthy 65-year-old is over $404,000, excluding long-term care bills, estimated to be up to $100,000 per year. For many people, living on $50,000 a year can be a huge drain on their lifestyle and potentially dangerous during unforeseen situations.

Make your portfolio big enough to benefit long-term from the 4% rule.

O’Leary’s recommendations for surviving on $500,000 in retirement are unrealistic for many people. A larger retirement fund may be required to support a decent lifestyle and address age-related handicaps.

Financial Advisor Bill Bengen invented the “4% Rule”, which says you can safely withdraw up to 4% of the value of your retirement portfolio in the first year and continue to withdraw the same inflation-adjusted amount in subsequent years. In doing so, Bengen found that most retirement savings will last over three decades and, in some cases, 50 years.

For example, 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, given that inflation jumped by 2%, you can adjust for inflation to withdraw $81,600. In the third year, you take the previous year’s allowable withdrawal amount and adjust it for inflation. After all, you try to preserve 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, after which inflation affects the amount withdrawn. The 4% rule was founded on decades of historical market data on returns and volatility and can provide a more stable approach to retirement planning.