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Retirement is more than just numbers. You need to look at all the puzzle pieces before you can put them together, says Money Magazine’s Walter Updegrave. Sign up for the Ask the Expert e-mail newsletter Question: I’m 55 years old and would like to retire at 60. I’ve got $30,000 in a money market account and $170,000 in my 401(k). I’ll have a pension of $1,500 a month and I’ll collect Social Security of about $1,800. Do I have enough to retire at 60? –Liz, Los Angeles, Calif. Trying to figure out whether you can afford to retire - at 60 or any other age, for that matter - is essentially a process of putting together pieces of a financial jigsaw puzzle. Some of the puzzle pieces are the income you’ll collect in retirement - your $1,500-a-month pension and your $1,800 monthly Social Security check. Others are the assets from which you can draw income - the $30,000 you have in a money-market account, the $170,000 in your 401(k) and whatever growth you’ll have in those accounts from additional savings plus investment earnings over the next five years. The idea is to assemble the various pieces and then see whether a picture of retirement life emerges - that is, one that reflects a post-career standard of living that’s acceptable to you. Problem is, it’s virtually impossible to develop even the fuzziest image of retirement life in your case because you have left out several major pieces of the puzzle. Figure your expenses
You give no indication, for example, of the various expenses you will incur in retirement. Without having a decent handle on how much money will be going out on a regular basis, it’s virtually impossible to say whether the money coming in from your pension, Social Security and reasonable withdrawals from your savings will be sufficient to support you comfortably after you stop working. A particular concern for someone in your position is health care. If you retire at 60, you will have to wait five years until you qualify for Medicare. If you’re fortunate enough to have retiree health coverage from your employer - which is less frequently the case for most workers - then maybe this is a minor piece of the puzzle that won’t materially affect your ability to retire soon. But if you’re going to have to provide that coverage on your own, then you’ll need to factor the cost of private medical insurance into your budget for at least the early stages of retirement. As you can see by perusing the price of policies at this site, that expense alone could be enough to determine whether you can actually afford an early exit from the workforce. Look at how you’re invested
And even some of the puzzle pieces that you have mentioned need to be refined more if you want more than just a vague sense of whether you’re prepared. Take your 401(k). It’s not just the size of your account that matters, but how it’s invested. Are you hunkered down mostly in cash and fixed-income securities? Are you taking a flier on high-octane stock mutual funds? Or do you have your money spread among a diversified lineup of both stock and bond funds? The answer can have a significant impact on how much income you can expect to draw from your retirement savings, and how long those savings might last. All of which is to say, based on what you’ve told me, nobody can give you an accurate sense of how viable an option retiring at 60 is for you. Get help
Fortunately, there are two ways you can quickly bring your retirement prospects into sharper focus. One is to plug all your pertinent financial information - pensions, Social Security, retirement investment accounts, your anticipated retirement expenses - into a decent online calculator, such as Fidelity’s Retirement Income Planner, that can crunch all the numbers and assess your odds of being able to retire on the schedule you envision. (You don’t have to be a Fidelity customer to use this tool, although non-customers do have to register at the site.) The other way to do this is to hire a financial adviser to do the analysis for you. If you take this route, however, be careful to avoid glorified sales people and outright scamsters posing as advisers. Crunch the numbers
Whichever way you decide to go, I recommend you run multiple scenarios to see how your retirement prospects decline or improve as you vary your assumptions. For example, it could very well be that delaying retirement just a year or two could fatten your nest egg enough to give you a much more comfortable lifestyle and reduce your odds of running out of money. You might also want to try varying the date at which you’ll start receiving Social Security. You can begin collecting as early as age 62. But holding off can boost your payments by as much as 8% a year. Or you can figure out how your payment might vary at different ages, with an online calculator.
Of course, postponing Social Security will mean drawing more money from your savings while you’re waiting to collect. But this decision can work in your favor if you live to life expectancy or beyond. You’ll also want to factor in other possible income sources, such as a reverse mortgage and working in retirement. You may not need to rely on these options, but it’s a good idea to see what sort of cushion they might provide. Finally, if you are serious about retiring at 60, you should definitely begin considering you’ll actually live in retirement. I mean think about how you’ll fill the hours of your days once work isn’t dominating your schedule. Neglect this sort of “lifestyle planning” and your retirement may be a financial success but not emotionally fulfilling. But it’s all got to begin with an assessment of all the pieces of the retirement-planning puzzle, not just a few. So either start evaluating the big picture on your own along the lines I’ve recommended, or find someone who can help you bring it into clearer focus. Got a question? Ask the expert. Filed under Uncategorized
Posted by kp 10:24 am 13 Comments
 | Add a comment Family history on longevity should be put on top of the list when considering for early retirement. How much you’ve saved, second. Why plan to work till 70 just to save enough money for retirement when the family history’s lifespan just averages 75? Enjoy life while you can. Posted By Rolando Bartolome Mission Hills California : April 30, 2008 3:29 pm
Generally good advice in the blog, but you can live on a lot less than you might think. I retired at 53 from the federal civil service retirement system on only $1,800 a month, and about $60,000 lump sum. I looked at the figures, didn’t like them, but jumped anyway. Fortunately, my federal annuity is inflation adjusted (now at about $33,000/year at age 67), so I don’t worry about a declining relative income, but my lump sum was exhausted a few years ago. Still, even with a new wife and kids (we don’t all “die” at retirement) I get by. Some things to do to help make up for the low income: Health Posted By DoctorM AustinTx : April 9, 2008 10:25 am
The $170,000 could be rolled into a self-directed IRA and invested in an apartment complex with a decent cap rate in an emerging market. This will generate $1,500 to $2,500 monthly income - indexed for inflation - without ever spending the principal. Advantages: 1. Never worry about running out of money in retirement. 2. Leave the property to heirs 3. Keep up with inflation with rent increases 4. Value of nest egg goes up with appreciation 5. Can force appreciation, purchase another property with cash-out refi and add another $1,000 to $2,000 or more in monthly income. 6. Lower taxes by deducting depreciation and interest expenses. Posted By Bob Sharpe, Arcadia, CA : April 8, 2008 1:11 pm
I agree. Health insurance, it’s cost to you at retirement is a big factor in considering before retiring. Also, in this example, is there a home mortgage still out there? What I did before I retired, is put together a financial spreadsheet showing all my income at retirement, and all my costs, and that let me know whether I could retire or not. Don’t take a chance, have all the answers before you decide to retire. Posted By robert k. granby, ma. : March 31, 2008 2:02 pm
Writer needs to state whether or not the pension is inflation adjusted. If it is, and using the 4% rule for savings, the person could semi-safely rely upon roughly $48M/yr. Posted By Port St Joe, Fl : March 28, 2008 2:10 pm
This person does not have enough nest egg. Addtionally, she can not collect SS for two more years. She will burn about $50k before she can start receiving at 62. She will eat up a lot of that nest egg. How sure is this person of the pension? Ask the people at Delta Airlines about that. At $3300 a month, this should be enough for a modest retirement after 62. . However, if you have a castrophic illness or accident you will be wiped out in a nanosecond. My personal opinion and I am 58, is that a person who is 60 should have at least $750k in investable monies plus your pension and SS. Sorry, but you asked. If would be helpful to find our this persons income per year. I would suggest she work at least until 66 and then she would be in a better position. Posted By Jim , St. Paul : March 27, 2008 6:16 pm
If this person was a military retiree then he or she wouldn’t have to worry about medical expenses because they are covered for life. So retiring at the age of 60 would be perfect for this person. Posted By chet, san diego ca. : March 26, 2008 6:54 pm
The author is pretty much on, it is impossible to know if this person can retire without a lot more info, especially about his anticipated expenses. This is refreshing, so many go off on these wild tangents when they know nothing about the persons situation. There are lots of retirees out there with social security and little more, they seem pretty happy to me. It’s not all about money, some people are happy no matter what. I envy them! Posted By Jon Morgan, Medicine Lodge, kS : March 26, 2008 2:18 am
First off, it’s hard to just go off from these simple numbers. This person needs to have a financial needs analysis (FNA) done to really determine where they stand. There are other options, such as getting their 401k under active management where they can earn double digit figures per year. Oprah’s money manager, Rick Edelman, is partnered with the company I’m with and all they do is work assets under management to grow those net eggs. I’m going to be putting up a blog that provides more info on this. Stand by! Posted By Reginald Sinevet, Atlanta, GA : March 24, 2008 3:06 pm
With your limited savings and 401k funds you better work till 70. Medical costs alone will eat up $250,000. Posted By Will, Orangeburg, Sc : March 18, 2008 10:36 am
As usual, Walter Updegrave hit this one on the head: This person cannot retire unless he/she has a plan for obtaining health insurance. I calculated this retirement income of about 47,599/year. Even if his/her house is paid off, they will still have to come up with about 1,000 dollars/month plus for decent health insurance, and that will rise every year. That assumes that this potential retiree has no pre-existing conditions which do not allow them to purchase health insurance on the open market. They may not even qualify for it at all, leaving them with no insurance. Two options: 1. Work a job for just enough hours to get health insurance, during “retirement.” 2. Form a small “family business” to get the insurance, but that usually requires a minimum of two insured to qualify…even with a small family business. The issue is clear. Health insurance will decide if this person can retire. If he/she can get it from their company, fine, but even those “benefits” have been known to evaporate…without prior notice. I don’t see early retirement for this person. sanjosemike Posted By San Jose, CA : March 17, 2008 12:11 pm
This person claims $1800.00 in social security income. I thought $1600.00 was the most one could collect????? Please clarify. Posted By Don B, Livonia, MI : March 16, 2008 8:57 pm
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Social Security income is based on the number of years you worked, the amount you contributed each year (your salary), and the age at which you choose to retire.
At age 60 the amount of Social Security income is ZERO, plus this person will not be contributing the last 2 years, assuming they plan to start collecting at 62, which brings the amount down noticeably. To collect 1800 at age 62, this person would have to have been making BIG BUCKS for a lot of years, meaning their savings and 401k should be a lot higher. Anybody CAN retire at any age, it depends on whether they want to maintain their current lifestyle or be homeless - there isn’t enough information here to determine that.
I am 60 and my SS statement says if I continue to earn at my current rate, with inflation increases, I would receive over $2,000 a month in Social Security, so $1,800 isn’t the max for me - it may be for those youngsters who are being told that Social Security will not have enough money to fully fund their obligations at retirement. Current estimates are for about a 50 BILLION dollar shortfall - another one of those realities congress will face some other time, but noone seems to want to address that before its too late. If you are young, don’t count on the government or the lottery, the sooner you start investing, the more you will have when you do try and retire.