So I have a question about my retirement.
I will be 62 years old in a couple of months. My wife is 52 and does not work. I currently am employed with an income of $150,000-$200,000 a year. My 401(k) has $950,000 in it currently. My savings are roughly $350,000. I also have investments in worth $500,000, generating approximately $24,000 a year. My only debt is my car loan ($40,000.00) and my mortgage, which is a monthly payment of $1,350. My home is in Missouri although I currently live and work in Florida. I rent there for $3,000 a month.
I would like to retire next year in April. I will be 62 ½ years old and am in good health. I don’t plan on drawing Social Security for some time since I have a cash flow plus cash savings. Should I postpone Social Security? If I draw Social Security, then I should receive about $2,100 a month. If I wait until my Full Retirement Age, I should receive $2,900 a month. Is it doable to retire comfortably at 62 ½ years old? Have I positioned myself well?
I would greatly appreciate your feedback and advice.
Congratulations on years of hard work saving so much money. That is truly an accomplishment and will serve you well in retirement.
You ask if you’ve positioned yourself well for retirement. The truth of the matter is, many people will see your total investable assets as $1.8 million and think “of course,” but it’s a fair question to ask.
Ultimately, “your success will be a function of your savings, investments and your cash flow,” said Erika Safran, a certified financial planner and principal of Safran Wealth Advisors.
It’s best to consider your investable assets as $1.8 million because that doesn’t include the value of your home. If you’re not planning to sell your home and use the proceeds to fund your retirement, it shouldn’t be in the calculations, Safran said. That doesn’t mean it’s not valuable or helpful in the future — should an unforeseen emergency occur, you could possibly consider a reverse mortgage if it fits your circumstances later in life and depending on eligibility requirements.
Keep in mind, everything in this response should be treated as a starting point. You didn’t provide many numbers for the financial advisers I spoke with to parse. That being said, if we round down to the lowest possible income per year you mentioned, which is $150,000 a year, and you were to max out your 401(k) contributions at $26,000, after taxes you’re looking at roughly $90,000 to spend on living expenses, Safran calculated. That’s the amount of money you have to replace for your retirement years. Ask yourself — does that sound doable? Are there any expenses that may deter you from meeting that threshold, or do you need to make changes to meet that limit?
As the saying goes, “cash is king” — the same can be said about cash flow management in retirement. You have some great positives — assuming you move back to Missouri full time and stop paying rent in Florida after you retire, having those extra funds will certainly help your cash flow. If you consider your monthly payments for your auto loan and mortgage as part of your living expenses (which would make sense), you’ll have even more cash to play with when those debts are repaid.
But you didn’t mention any of the other living expenses you have or can reasonably expect to have in retirement, and that’s what will truly make or break your retirement goals. You should consider writing out a budget, or at the least what your expected monthly expenses will be in retirement. You only provided us with your monthly mortgage payment and rent, which leaves a lot of considerations on the table. With that information, you could do a few calculations of your own or work with a financial planner to determine how realistic retiring in April would be. A financial planner could help you create a strategy for withdrawing your assets as well.
Either way, think long and hard about your expenses in retirement. Brian Kennedy, a wealth planning adviser at KCA Wealth Management, suggests writing out one column of the necessities you’ll need to pay for in retirement and then one for your wants and desires, such as travel, gifts and hobbies. He recommends reading “The Bucket Plan: Protecting and Growing Your Assets for a Worry-Free Retirement,” by Jason L. Smith.
Also, outside of your investments, earmark the equivalent of two years’ worth of expenses into a savings account and maintain that balance every year, Safran said.
Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey
Before I move on to some other points, I want to flag your healthcare needs. Will you and your wife be covered under a plan if you retire, and if not, what will you do about it? Americans are eligible for Medicare at age 65, which means you’d have two and a half years to go before you can enroll. Your wife would have even longer before she’s eligible.
If you like your job and it’s “tolerable in terms of family dynamics,” you may even want to consider working a bit longer not only to continue building up your nest egg but also to take advantage of any health insurance benefits you get, said Daniel Hawley, a certified financial planner at Hawley Advisors. This is not ideal for everyone, of course, but it could help.
“The longer he works and funds his 401(k) (and builds savings and investments) the more secure [his wife’s] retirement becomes,” Hawley said. Even if you don’t keep working in some capacity with healthcare benefits, you’ll have to budget accordingly for your wife’s health insurance costs in the future — especially when you become eligible for Medicare.
Also, along with where you’ll get health insurance, think about what sorts of medical expenses you’ll have in the long- and short-term. Healthcare costs are a major portion of retirees’ annual expenses, especially as they age.
One last note on your assets before I move on. Many people think the closer someone gets to retirement the more conservative their investments should be but that isn’t necessarily true. “What people with that mindset don’t realize is that a) retirement is the ending of earned income and the start of funding a remaining lifespan of unknown years,” Hawley said. You could very well be planning for 40 or more years, especially when considering your wife’s needs after you’ve passed, he said.
“Despite COVID, people in the upper-middle class with resources are living longer, healthier lives,” Hawley said. “I tell my clients to expect to live longer than you think… and that being old is difficult enough without being ‘old and broke.’”
Now onto Social Security — when a person claims his or her benefit is always a very personal decision, and depends on numerous factors, including income needs, life expectancy and just overall attitude toward the program, to name a few. Some people claim as soon as they can, which is 62 years old, while others wait until their Full Retirement Age to get 100% of the benefit they’re owed (the earlier you claim before your FRA, the less of your full benefit you get). Then there are people who expect to live into their 80s or 90s and don’t need the money yet, so they claim Social Security after their FRA.
There are retirees who make their decisions based on their lifetime earnings from Social Security. For example, assume a person has 30 years of retirement at age 62. If she were to claim at 62, over 30 years she’d accumulate $756,000. If she waited until age 67 and thus had 25 years of retirement left, she’d accumulate $870,000. “The greater your family longevity history, the better off you are waiting until at least full retirement age,” Safran said. “If you can afford your life expenses without the Social Security income, you are better off delaying.”
When you figure out your cash flow needs, you’ll be able to have a better picture of when to take Social Security, Kennedy said.
You may also want to delay for your wife’s benefit, Hawley said. Not only are you getting an “8% guaranteed return per year on the payment” when delaying, but because she is 10 years younger and presumably gets no Social Security of her own, your wife will get a percentage of your benefit if or when you predecease her, he added.
I know you were asking about your retirement in particular, but I wanted to provide a few more notes based on the information you shared about your wife. One main area is survivor income needs, Kennedy said, which that budget I mentioned previously could help you both figure out. The other would be what life insurance policies you have, if any, and how they’ll benefit her. And lastly (for now), make sure you have all your legal documents in order — wills, powers of attorney, healthcare proxies and so on. Here’s more on estate planning considerations.
Safran had another suggestion: consider converting a portion of your individual retirement account to a Roth IRA on an annual basis when you’re in retirement. This is a great job for a financial planner, who could determine the maximum amount of money should be converted while keeping taxes in mind. “Unlike an IRA, the Roth IRA does not have required minimum distributions at age 72,” she said. “The investment in the Roth IRA grow tax-free and the withdrawals during retirement (after 59 ½ years old) are also fully tax-free.”
And finally, I tell this to anyone at any age — think carefully about what retirement will look like. Discuss those goals with your wife, and plan accordingly. Think about the unpleasant aspects of it — such as estate planning and long-term care — but also the fun parts, like what trips you may go on, what hobbies you may take up and what other passions you’ll pursue. Good luck!
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