With $1.4 Million at 59, Can I Cover $5k Monthly Expenses in Retirement?
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
When thinking about whether you’re financially prepared to retire or not, you’ll want to think about it in a certain way. You have a lifestyle that you would like to maintain, and a portfolio that can safely generate a specific amount of income each year. Once your costs and means overlap, you can afford to retire.
Here, we have $1.4 million in assets and $5,000 in monthly expenses. Depending on your personal situation, this type of portfolio may last through retirement with proper planning and if you can supplement it with enough Social Security income, but the bigger question is if you should you retire before 60.
Do you have specific questions about retirement? Speak with a financial advisor today.
At age 59, you’ll retire six years early and eight years early by Medicare and Social Security standards, respectively. This raises several issues, all of which will shift your retirement costs.
For the sake of this example, let’s say that on average someone in their 60s can expect to live until around age 87. This has given rise to the standard 4% rule of retirement planning. Anticipating 25 years of withdrawals lets a 67 year old retiree plan for their average life expectancy with some room for happy error.
If you retire at 59, you may want to plan, using this example, for more like 35 years-plus of withdrawals to cover the same room for error. In that case, you will probably want to plan for annual withdrawals in an amount less than 4%.
The earliest you can plan on taking Social Security is age 62, but doing so would lock in reduced benefits for life. To collect “full” Social Security benefits, you will need to wait until age 67, and to collect maximum benefits you will have to wait until 70. This will increase the amount you need to withdraw from your portfolio as you wait for benefits to kick in.
You will become eligible for Medicare at age 65. Between now and then, you will need to pay for your own health insurance. This will add to your monthly costs, meaning you should plan for more like $5,500 per month, on top of the standard gap insurance and long-term care insurance that most retirees need to anticipate.
Finally, the longer you spend in retirement, the more you will need to anticipate inflation. Ideally, you can build an investment strategy that helps your portfolio cope with rising prices, or, at least for as long as the portfolio lasts.
Leave a Reply