I'm 63, Have $1.6 Million, and Spend $4,500 Monthly. Is It Time to Retire?
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
With a $1.6 million net worth and $4,500 in monthly expenses, retiring at 63 is a possibility, but quite a bit of that depends on your circumstances. The income your net worth will generate depends first on how much of it is in the form of liquid assets. Your personal risk tolerance is another key factor that will help determine how much your portfolio is likely to earn, as well as how much of the principal you are comfortable withdrawing to pay living expenses. Additional elements of importance include how much and what kind of other income you have, your tax situation and your life expectancy.
Do you have questions about retirement planning? Speak with a fiduciary financial advisor today.
Using the 4% withdrawal rule of thumb, you could withdraw $64,000 the first year, adjusting it upward for inflation annually thereafter. This rate is equivalent to $5,333 a monthly, which is technically above your monthly expenses.
Now, let’s look at the risks of going this route. To begin with, many advisors note that a 4% withdrawal rate is not always going to work in all situations. While it’s designed to let a conservatively invested portfolio last at least 30 years under a wide variety of market and economic scenarios, it may not consider all potential negative developments. For instance, what if an era of high inflation, low investment returns or unexpected expenses such as medical costs come into play? That could cause your monthly expenses to skyrocket or your portfolio to be unable to keep up.
Much also depends on how much of your net worth consists of investable, liquid assets that can generate active and accessible income. For instance, what if your $1.6 million net worth includes your paid-off personal residence valued at, say, $400,000. While you’re getting a great deal of value out of the home (this would have it holding a quarter of your net worth’s value), you can’t generate income with it unless you sell or rent it out.
Subtracting the home’s value in this scenario, you would still have $1.2 million, but is any other part of it illiquid? Let’s assume not and it’s all in a combination of cash, CDs, bonds, shares of stocks, mutual funds and retirement accounts. Applying the 4% rule in this situation, you could safely withdraw $48,000 annually or just $4,000 a month, leaving $500 a month in unfunded monthly expenses.
A fiduciary financial advisor can help you create a retirement income plan.
The good news is that if you’re similar to a typical retiree, you will have sources of income other than investments. These could include Social Security benefits, pension benefits, annuity payments or earnings from part-time work.
Leave a Reply