With retirement almost within reach, a few more years of work can seem daunting. But before you make any final decisions, you need to make sure you can retire safely.
Here we have a profile with about $1.75 million in savings in addition to Social Security. Can you retire now? It depends on factors specific to your life and finances.
Here are some important things to keep in mind.
Speak to a financial advisor today about how best to achieve your financial goals.
Organize your finances
First, you need to understand your current financial picture.
“The first thing someone should do is make sure they have adequate emergency funds set up,” said Jeremy L. Suschak, CFP® at DBR & Co. “Second, we would suggest paying off any high-interest debt you may have. Third, the person should create an estate plan…Fourth, the person should ensure that they have adequate insurance coverage.”
In other words: get organized. Before you retire, be sure to think about the key financial issues you will face before leaving your job. Do you have enough for surprise expenses? Have you paid off major debts? Are you prepared for additional and nursing care insurance?
And, said Suschak, what will your expenses look like?
The latter will tell you whether you “should” retire.
With $1.75 million in savings, you can almost certainly pay your bills. For example, let’s say you withdraw $50,000 per year. In most places, you can use this to finance basic foodstuffs and housing and get by for 35 years, even without taking social security benefits into account.
But you may want more than just basic food and shelter. This is where budgeting comes into play. What is your lifestyle like? How much are you currently spending on housing? How much do you spend on food, entertainment and travel? And how will that change when you retire?
A good rule of thumb is to assume you’ll need about 80% of your pre-retirement expenses. So start there and work backwards.
A financial advisor can help you with retirement planning and estate management.
Calculate your Social Security income
Next, determine your Social Security benefits.
If you start collecting Social Security at 62, the SSA reduces your lifetime benefits to 70% of their potential value. This means you can get up to $2,572 per month starting in 2023. You can also retire at age 62 but delay receiving benefits, increasing your maximum benefit to up to $4,555 if you wait until age 70.
In either case, the amount you receive is based on the Social Security credits you earned while working. Make sure you have an idea of what that will be.
Manage investments
Finally get your money out of cash.
As Suschak told SmartAsset, investing this money should consider tactical opportunities and long-term strategy. Most importantly, transfer that $1 million to an account “that matches it.” [your] Risk profile and long-term investment objectives.”
Converting your money from cash to investments will greatly improve your retirement income. The same goes for managing your current IRA. Let’s say you want to approach your retirement safely and conservatively. You could put all $1.75 million into an annuity and potentially collect $10,753 per month (about $129,000 per year). Or you could take a riskier approach and invest everything in an S&P 500 fund. At the historical market return of 10% per year, that could net you $175,000 per year – if you can handle the volatility of losses and down years.
Or you could split the difference. As Tim Maurer, Chief Advisory Officer of Signature FD, recommends, you can spread your investments for security and growth according to your needs and financial flexibility.
Say you need $4,500 per month ($54,000 per year) to pay the bills. Aside from Social Security, you could convert your IRA into an annuity that would provide you with a reliable, guaranteed income of $5,224 per month for life. Then you could invest your $1 million in an S&P 500 fund and get an average return of 10%. By taking care of your needs, you can weather the volatility of the stock market while making profits.
It is important to have a diversified portfolio that matches your risk tolerance. Speak to a financial advisor today to develop your investment strategy.
Bottom line
With $1.75 million in cash and investments, plus Social Security benefits, you can almost certainly afford to retire early. Whether you should do this is another question that depends entirely on your needs and lifestyle.
Tips for early retirement
-
For many people, early retirement is a buzzword these days. As careers become more demanding, it’s perhaps no surprise that people want to maximize their wealth and get out when they can. If this applies to you, here’s what you should know.
-
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three verified financial advisors working in your region, and you can have a free discovery call with your matching advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock/JLco – Julia Amaral
The Post I am 62 years old, have $1 million in cash, $750,000 in an IRA and Social Security. Should I retire now? appeared first on SmartReads by SmartAsset.