Dear Pawonation.com,
I'm 64 years old and in good condition. My spouse is 63 and equally healthy. I continue to work, while my partner served as a homemaker previously, which means they will receive Social Security benefits based on my record.
My annual income is $100,000. Our savings include a tax-deferred 401(k) account worth $1.3 million and $300,000 in Roth IRAs.
If I retire at this point and start collecting Social Security, we would receive a combined total of $4,243 each month. The house is fully paid for with zero debts attached. Upon retiring, I'll need to buy separate health insurance plans for both myself and my spouse.
Can I retire currently and sustain my lifestyle for a minimum of three decades?
Ready to Retire
Related: The pressure is breaking me down": At 73, I'm overwhelmed with $200,000 in debt—and I haven’t saved anything. Is there any assistance available?
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Dear Ready,
Retirement planning queries typically require much more detailed responses than simple yes-or-no answers—and since I'm not your personal finance advisor and lack access to all your specific information and financial documents, I can't provide definitive advice.
To provide you with some insight into your current situation, let’s run through some approximate calculations.
The initial aspect pertains to income during retirement. You've received precise projections for both yours and your spouse's Social Security benefits, which greatly aids in your financial planning. This information is particularly useful because it enables you to understand whether—and to what extent—you might rely on funds from your retirement savings.
The 4% rule, which states retirees can withdraw 4% of their investment portfolios to make it last around 30 years, has been highly contested in recent years. Critics argue it suggests people should take out more than they actually need to take out.
Nevertheless, it can offer you a sense of what to anticipate from retirement plan distributions, so we'll use it for simplicity. If you were to calculate 4% of your 401(k) and Roth IRA balances, you would disburse $64,000 during your initial year of retirement, which equates to approximately $5,333 per month. Combined with your Social Security benefits, this amounts to more Then you could get more from sources outside of your current employment. This adjustment would let you lower how much you withdraw monthly, thereby stretching your savings further.
The extent to which you can reduce your withdrawal rate depends on both of you. Here is when you should assess your present expenses and contrast them with what they might look like during retirement.
Fingers crossed, some of your expenditures might shift. Without commuting costs or buying lunch from outside, you could see significant savings, particularly if you're based in a bustling city like New York City or Los Angeles. However, with more free time to enjoy together, you may find yourself spending more on leisure activities or trips.
Healthcare will pose an additional cost, particularly over the next few months. Since private healthcare comes with significant expenses, it’s advisable to begin comparing different plan options for both of you right away, prior to finalizing any choices regarding your retirement timeline. You could explore various plans on HealthCare.gov This will direct you to local plans accordingly. For example, residents of New York City who enter their ZIP code on the site will be instructed to visit New York State’s marketplace. There, they can sort through plans based on the individuals covered, tiers (such as out-of-pocket costs), and even choose specific insurers.
Qualifying for Medicare
It’s great news that you're both in such good health and will soon qualify for Medicare at age 65. This means you won’t have to rely on expensive private insurance for much longer. have To continue working solely for access to health care, though some individuals attempt to remain employed until age 65 provided they can tolerate it, thereby reducing by one year the period they must cover health insurance costs for an unemployed spouse not yet eligible for Medicare.
There are several tactics at your disposal, particularly concerning Social Security. Based on certain variables, some retirees might opt to draw larger sums from their investment accounts initially, allowing them to receive greater benefits from Social Security down the line. If you were born in 1960 or after, full retirement age is set at 67 years old, whereupon you would qualify for the complete benefit amount due to you. Additionally, taking benefits before reaching this age could reduce both yours and your spouse's payments. While not suitable for every situation—considerations such as current market trends, financial needs during retirement, alternative revenue streams all play crucial roles—it remains an important option to understand.
An alternative approach along those lines might involve having just one partner file for Social Security, while making up the shortfall through investment earnings. This strategy allows one benefit to continue increasing without drawing excessively from your retirement funds. Given these circumstances, you'd need to apply since supplementary benefits aren't available unless the individual whose work history is referenced starts collecting their own benefits first. It’s important to know that auxiliary benefits cease expanding after reaching Full Retirement Age (FRA), whereas an individual filing under their own account may see increased payments extend beyond FRA all the way until they turn 70.
The best thing you can do is run all of the numbers, as many as you can and in as many various scenarios as you can. Here’s one calculator You can utilize this approach; however, the company managing your retirement accounts probably offers their own variation.
Acquire a notebook and maintain records of different scenarios. Sometimes, adopt a highly cautious approach, estimating that your expenditures could exceed your present spending levels (there may be significant home repairs or unforeseen medical issues). Perform calculations for periods with high inflation rates and meager investment returns (though this scenario seems daunting, it’s essential to understand how it unfolds), followed by instances where both factors are minimal yet you must withdraw larger sums than normal.
You'll need to consider your tax obligations as well as how your retirement income and Social Security benefits get taxed. varies by state , along with all significant costs you should anticipate.
Keep in mind that just like in life, circumstances evolve. Therefore, when you're working through the problem, remain open and capable of making adjustments.
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