Once you reach a certain amount in savings, you might start to wonder whether you can live off of it and retire early. But what about just a couple hundred bucks? How long can you live off 200k? Is it even worth trying??
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Living Off 200k – Is It Even Possible?
Living off 200k is not likely to happen, but there are a couple ways to make it work. Maybe you’re wondering how you can live off $200,000 for the rest of your life, or how long $200,000 will last in retirement, or even what you should do with $200,000 that will set you up in the future.
Rest assured, we break down the steps you can take once your savings reach $200k for the best possible future, and different ways to live off $200k. This post was written by our staff writer, Lindsey Smith.
What Should I Do With 200000 Dollars?
Whether you’ve recently received an inheritance or you’ve reached a new savings goal, you might be wondering how best to use your nest egg.
- What’s the best thing to do with $200,000?
- What should I do with 200000 dollars?
If you’re wondering how to live off 200k, the first thing you’ll want to look at is paying off any high interest debts. Credit cards, unsecured student loans, whatever you’re carrying with a high interest rate should be first on the chopping block.
Paying off anything that isn’t your mortgage is a great plan if you can swing it. Once you’ve tackled high interest debt, the next thing to look at is whether you own your house or rent. If you’re currently renting, you might consider using some or all of that money as a down-payment on a house.
Or, if you’re in a low cost of living area, the full purchase of a house. That decision will depend on whether it’s emotionally better for you to own a house outright or whether you’re comfortable carrying a low-interest mortgage.
Beyond that, the best thing you can do is invest it right now. If you don’t already have an emergency fund, you can set 6 months of living expenses aside in a high interest savings account.
If you have an emergency fund, you can max out your retirement accounts. ETFs and index funds are often best, since they’re passively managed and have the lowest expense ratios, but stocks and bonds through a broker are also an option. Some people also like to invest in REITs or even physical real estate.
How To Live Off 200k?
Is it really possible? What’s the secret for how to live off 200k? This really depends on a few factors. First, if you have your full $200k invested, and let’s say you’re getting a 5% return on investment, that will give you $10,000 before fees and taxes per year.
If you’re looking at just living off the dividends, you’ll need to live in a very low cost of living country, or have other income streams, like pension, social security, part-time work, or assets working for you.
So what’s the answer for how to live off 200k? Live off $10k a year. You’ll need to continue to live a very frugal lifestyle, and be very good at sticking to a budget. You’ll need to make sure you know your budget inside and out, and factor for inflation and unexpected expenses (like medical). The above assumes market return, but that’s not reliable.
Next you’ll want to figure out how long you can live off the principal of your $200k investment, should it come to that. So onto the next question…How long can you live off 200k??
How Long Can You Live Off 200k?
If you’re trying to decide how long you can live on 200k, first you need to figure out what your monthly expenses are, including non-negotiable payments.
Then factor in extra spending like entertainment, travel savings, clothing, dining out, and anything else that isn’t a necessity. According to the calculator at saving.org, if you invest $200k with a 4% return, and withdraw a budget of $3000 per month, your money will last 6 years and 4 months.
But…how long can you live off 200k if your expenses are only $1000 per month? What about other situations? Check out the calculator. You can use it to adjust the budget you’re looking for. If you withdraw less than $3000 a month, it will last longer.
If you withdraw more than $3000 a month, it will last less than 6 years (not ideal!). And, if you’re looking at living off $200,000 after retirement, and you have a pension and/or social security payments in the mix, you could likely stretch it out for a longer period of time. And yes…maybe you could even retire off 200k!
Can You Retire Off 200k?
How long can you live off 200k? Is $200,000 enough to retire on? In the U.S.A., not likely on its own… At a 4% return, you’re looking at about $8,000 per year, or $667 per month, before fees and taxes. However, if you have a pension or social security to add to that, it’s doable.
Can you retire off 200k with Social Security payments?
If you receive the average Social Security payment (as of 2020) of $1,543 per month, and add that to the $667 you’d receive from your investment dividends, you’ll be working with about $2,210 per month.
For one person without housing expenses, it’s possible in a low cost of living area of the country. With a spouse also drawing social security, that boosts you to $3,753 per month, which is a little more comfortable.
Can you retire off 200k with Social Security payments AND a pension?
If you added in a pension of say, $1000 per month, plus your Social Security payment of $1,543, plus your $667 in dividends, you’re at about $3,210 per month, or $4,753 with your spouse’s Social Security payment.
For an individual or couple without housing payments, that’s a pretty comfortable income for a low-to-medium cost of living area to retire with! So is $200,000 enough to retire on? With some other income like Social Security or a pension, absolutely!
How Much Money Do You Need to Retire Comfortably at Age 65?
How long will $200,000 last in retirement? Could you retire at age 65 with 200k and still live comfortably? Fidelity recommends having 10X your income saved by age 67. So, if you made a salary of $80,000 per year, you’d want to retire at 65 with about $800,000 invested.
Of course, everyone’s lifestyle goals are different. This calculation assumes life as normal, but if you want to travel, you’ll need to save more. You also might want a little bit more to account for inflation.
But what it comes down to is, if you’re wondering if you can retire at 65 with $200k and nothing else, the lifestyle you’d need to be living is that of someone living off $20,000 per year. If you think you can do that, then sure, you can retire…but you’ll always be thinking about money and how you don’t have it. Probably not the best way to retire.
Can You Retire at 55 With 200k?
What about retiring on 200k at age 55? Sure, it’s more aggressive than at age 65…but is it at all possible?
Not likely in the U.S., unless you have a good pension, other assets (like rental properties), and/or Social Security (though it’s better to wait those out beyond 55).
But, it is possible if you move to a place with a low cost of living, and similar levels of healthcare that you can comfortably afford. Even then, you’d need to be living a very frugal lifestyle, and be very budget-conscious.
So can you retire at 55 with 200k? If you had no other income, I’d highly recommend against it. If you had a grand or more coming in from elsewhere and you were used to living an extremely frugal lifestyle, then yes, I suppose it’s possible…but still not recommended.
How Long Can You Live Off 200k? In Summary
So how long can you live off of 200k? Like we said earlier, if you withdrew $3000 a month and earned 5% on that 200k, you could live on that money for roughly 6 years.
If you could scale it way back and live on just $2,000 a month, you could last nearly 11 years with 200k. What about if you lived on just $1000 a month? Then how long would 200k last?
How can I live off $200000 for the rest of my life?
Want to make the money last for the rest of your life? Here’s how you’d need to do it. By living on just $1000 a month and earning 5% on the 200k, you could make the money last 35 years.
It’s a super frugal lifestyle. And, with inflation, that $1000 will feel like just $500 a couple decades from now. But, if you think you could swing it, then yes, I supposed you could make 200k last for the rest of your life (even if you retired at age 55!) Is it the lifestyle I would want to live? Nope! But, I do suppose it’s possible.
How about you? Are you trying to figure out how long you can live off 200k? How long do you think you can make it last?