Ask an Advisor: I'm 68 With $2.4 Million Saved. How Do I Plan for Retirement at 70?
2024.12.11
A man reviews his assets and expenses as he builds a financial plan for retirement.
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I‘m a 68-year-old single man in good health and I plan to work until I am 70. As of now, I have $400,000 in CDs, about $1 million in stocks, and about $1 million in my 401(k) and IRA combined. When I retire, I will get about $4,200 in Social Security and I have $4,000 rental income. (This can be somewhat insecure because the properties are in a hurricane state). I live in a rental apartment in the San Francisco area. If I stop working right now, can I retire comfortably? And does it make sense to buy a property?
– Roger
In pretty much any reasonable context it’s safe to say you’ve done a good job of saving and setting yourself up for a financially secure retirement. However, to know whether you can retire comfortably today, in two years when you’re 70, or even at age 80, you need to think more specifically about the expenses you’d need to cover to maintain your desired lifestyle. I’ll explain why I say that, and hopefully do so in a way that helps you arrive at an answer.
What do people mean when they ask “Can I retire comfortably?” Generally, people are asking if they can reasonably expect to be able to cover the expenses required to maintain their desired lifestyle without running out of money given the assets they have available. There’s more to be said about each of the concepts contained in that broader question, but let’s focus on two parts: assets and expenses.
You’ve laid out the assets and income sources you’ll have in retirement. I can comfortably say that there are a lot of people enjoying perfectly secure, comfortable and happy retirements on a lot less. A lot of those people will even continue to see their assets grow throughout retirement despite spending from them. Factors like composition of your assets and the investment returns they generate, in addition to how much you withdraw from them, will dictate how long they can last which brings us to the next point.
While the scope of this is limited since I don’t have information about the expenses you need to cover in retirement, I can walk you through an example for how to approach it, which we will do momentarily.
To be blunt, I haven’t met anyone yet who is similarly situated as you that I thought was in any danger of running out of money. However, that doesn’t mean I can definitively say that about you without having more information about your personal cost of living. You may have a casual lifestyle that requires little income or an extravagant one that will take considerable planning and assets to support. We can’t know if the equation balances if we only know one side of it.
If we were sitting down and having this conversation in real time I’m sure you’d quickly say “Oh yeah, my monthly expenses are about $X.” So, keep that number in mind as we go through the example.
(A financial advisor can help you review your assets and expenses to build a retirement income plan that fits your needs.)
A man contemplates his investment mix and how much risk he's willing to take on in retirement.
But math isn’t the only consideration. We need to understand your personality and comfort level as it relates to dealing with the different risks of retirement. For example, if you are very conservative with your investments because you want very little volatility in your portfolio then you’d need to plan for a lower rate of return than you might expect with a portfolio that holds a little more equity.
Maybe you aren’t comfortable with withdrawing from your principal in years when the market is down. Or perhaps you are worried about the future of Social Security and plan to withdraw less than expected from your savings. The list could go on, but you get the idea. There are a lot of things that don’t fit onto a spreadsheet that you’ll want to consider. (A financial advisor can help you take all of this into account as you plan for retirement.)
With all that said, let’s consider how you might approach this with some relatively ordinary assumptions. Let’s assume that you have an average retiree risk tolerance that allows you to comfortably hold a diversified portfolio of between 50% and 75% in equities and the remainder in bonds. From there, it’s a matter of determining the amount you are comfortable withdrawing from your portfolio each year. It’s helpful to think about the withdrawal rate as a percentage of your total portfolio (such as the classic “4% rule”).
Depending on the factors I mentioned, as well as your life expectancy and time horizon, let’s assume you decide that a 6% initial withdrawal rate works for you. With about $2.4 million in distributable assets, that would allow you to withdraw $144,000 in the first year and then adjust your subsequent withdrawals for inflation. Add the $50,400 you expect from Social Security, $48,000 in rental income, and you’ve got $242,400. Then, you need to compare that amount against your expenses.
Keep in mind that “expenses” means more than just your monthly living expenses. Don’t forget to account for taxes, your plan to address long-term care, and whether or not you want to designate any specific amount to leave for your heirs since all of these factors pull on your assets.
Of course, this is only a hypothetical to illustrate an approach to income planning. Sometimes there’s a lot more that goes into deciding things like a reasonable withdrawal rate and how you feel about different risks. (If you need additional help with your withdrawal rate and retirement income plan, consider matching with a financial advisor.)
When thinking about whether or not you can comfortably retire, it’s important to consider your expenses, risk tolerance and psychology. It’s not uncommon for people to think of retirement planning as hitting some specific savings number and calling it a day. However, consider the relative balance between savings, expenses and other variables to determine the approach that fits you and your needs best.
As you plan for your golden years, it’s important to get an accurate estimate of how much money you’ll have saved up by the time you retire. Luckily, SmartAsset’s retirement calculator can help you project how much money you may need to retire and whether you’re on track to hit this target.
A financial advisor can help you navigate the sometimes complex world of retirement planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid -- in an account that isn't at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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