With $900k in a Roth and $2,200 Monthly Social Security, Is Retiring at 66 Feasible?

A girl looks out of the window in her office and contemplates whether she will be able to afford to retire at 66.

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Imagine that you could have $900,000 in a Roth IRA and collect one other $2,200 per 30 days in Social Security. Are you able to afford to retire at age 66?

A very good approach to answer this query is to begin along with your budget. What do you expect to spend on essentials, like housing and stuck monthly expenses, and what’s going to it cost to take care of your lifestyle? Then take a have a look at your retirement income and see how all those figures compare. (And for those who need additional help planning for retirement or constructing an income plan, consider speaking with a fiduciary financial advisor.)

Income and Expense Planning

A woman drafts her retirement budget, allocating money to her living expenses and discretionary spending. — A girl drafts her retirement budget, allocating money to her living expenses and discretionary spending.

For the sake of argument, let’s say that you just earn the median household income of $75,000. Conventional wisdom suggests that you just’ll need about 80% of your pre-retirement income to take care of your current lifestyle in retirement. That might mean that your Roth IRA withdrawals and Social Security advantages would want to generate about $60,000 before taxes and about $54,600 in after-tax income.

Can that work?

To begin, you could have $26,400 per yr in Social Security advantages. Since full retirement age is 67 for many, your advantages could be around 7% by claiming at age 66. (Based on these numbers you’ll receive $28,295 per yr in advantages for those who retired at 67.)

You furthermore mght have your Roth IRA, which can eliminate your potential tax liability on each your portfolio withdrawals and your Social Security. Since your Roth withdrawals aren’t taxable income, your Social Security advantages wouldn’t generate any federal income taxes either. Also, Roth accounts aren’t subject to required minimum distributions (RMDs) if you reach 73, supplying you with more flexibility in comparison with a pre-tax account.

The difficulty is that your Roth portfolio is comparatively light to support a full retirement. Chances are you’ll give you the chance to make the numbers work, but there wouldn’t be a whole lot of wiggle room in your budget.

For instance, take the classic 4% rule for withdrawals, which calls so that you can withdraw 4% from a balanced portfolio in your first yr of retirement after which adjust subsequent withdrawals for inflation. The 4% rule is designed to stretch a portfolio a minimum of 25 years.

Withdrawing 4% from a $900,000 Roth IRA would provide you with $36,000 in your first yr of retirement. With Social Security, you’d have a combined retirement income of roughly $62,400. Again, this can be a tax-free income. Nevertheless it doesn’t surpass your spending needs by much, limiting your flexibility. More importantly, in case your lifestyle or your area during which you reside is even modestly dearer than average, this won’t work in any respect.

You may also consider investing an annuity. With $900,000, a representative lifetime annuity could pay you around $70,440 per yr ($5,870 per 30 days), based on Schwab’s Income Annuity Estimator. That might give a combined annual income of about $96,840 (with Social Security).

This will likely be enough to supply some households with a cushty way of life, this income won’t be inflation-protected. Because of this, a big portion of your retirement income would lose purchasing power over time. (Whether you would like help protecting your money from inflation or evaluating annuity options, consider working with a financial advisor.)

There’s Value in Waiting

A man calculates how much his Social Security benefits will be if he waits until age 69 to claim them. — A person calculates how much his Social Security advantages will probably be if he waits until age 69 to say them.

Alternatively, you could possibly consider delaying your retirement by just a number of years. This will likely be especially attractive if you wish to construct more flexibility into your budget so you’ll be able to afford some luxuries, leisure and travel.

Should you delay retirement by three years and claimed Social Security at age 69, your profit would increase to $32,823 per yr ($2,735 per 30 days). Second, on the S&P 500’s 10% average annual rate of return, your Roth IRA could potentially grow to about $1.22 million.

Even for those who use a 4% withdrawal rate, your Roth portfolio could generate about $48,880 in your first yr of retirement. Combined with Social Security, you’d have $81,712 in yr 1. Or, you could possibly invest the entire $1.2 million into an annuity that may pay you roughly $95,000 per yr. Because of this, you’d have a combined income of greater than $127,000 in your first yr of retirement.

In each of those cases, delaying retirement would provide you with rather more financial flexibility for a cushty, sustainable lifestyle. (A financial advisor can assist you assess when you’ll be able to afford to retire.)

Bottom Line

With $900,000 in a Roth IRA and $2,200 per 30 days in Social Security, chances are you’ll give you the chance to afford to retire at age 66. Nevertheless, it could mean some tight budgeting and thin margins. As a substitute, it is perhaps clever to attend just an additional couple of years to let your portfolio and advantages grow slightly bit more.

Retirement Budgeting Suggestions

Social Security plays a serious role in most Americans’ retirement budgets. Determining when to say your advantages is a vital step within the retirement planning process. SmartAsset’s Social Security calculator can assist you estimate how much your advantages will probably be at different claiming ages.
A financial advisor can assist you construct a comprehensive retirement plan. Finding a financial advisor doesn’t need to be hard. SmartAsset’s free tool matches you with up to a few vetted financial advisors who serve your area, and you’ll be able to have a free introductory call along with your advisor matches to come to a decision which one you’re feeling is true for you. Should you’re able to find an advisor who can assist you achieve your financial goals, start now.
Keep an emergency fund available in case you run into unexpected expenses. An emergency fund ought to be liquid — in an account that won’t vulnerable to significant fluctuation just like the stock market. The tradeoff is that the worth of liquid money might be eroded by inflation. But a high-interest account means that you can earn compound interest. Compare savings accounts from these banks.
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