Ask an MBA: I am a 57-year-old with $1.1M in 401(k) and $50K in savings plans to retire at 62 with no debt. Wife and they will collect $3,500 each in Social Security and he plans to withdraw $5,000/month from 401(k). Is this a good plan?
My wife and I will collect $3,500 each month in Social Security and if I withdraw $5,000 per month from my 401(k), I’ll have a projected positive cash flow of $1,800 each month. My monthly budget includes $1,000 for property taxes and insurance on my home and $1,000 for health insurance until we qualify for Medicare at 65. Is this a good plan? What could I do to make it better besides delaying retirement?
–Shaun
Retirement Planning Tips for a 57-Year-Old with $1.1 Million in 401(k)
You are in a great financial position to retire at 62. With $1.1 million in your 401(k) and $50,000 in savings, you have more than enough money to cover your basic living expenses in retirement. However, there are a few things you can do to make sure your plan is even more secure:
- Estimate your retirement expenses.
According to the Bureau of Labor Statistics, the average household spends $66,260 per year in retirement. However, your actual expenses may be higher or lower depending on your lifestyle and location.
Here are some factors to consider when estimating your retirement expenses:
Housing: Will you own your home in retirement? If so, you will need to account for property taxes, insurance, and maintenance costs. If you plan to rent, you will need to estimate your monthly rent payments.
Food: How much do you spend on food each month now? You may be able to reduce your food costs in retirement by cooking more meals at home and eating out less often.
Transportation: Do you have a car? If so, you will need to account for fuel, insurance, and repairs. You may also want to consider other transportation options, such as public transportation or ride-sharing services.
Healthcare: Healthcare costs are a major expense in retirement. It is important to factor in the cost of Medicare premiums, deductibles, and copays. You may also want to consider purchasing long-term care insurance.
Other expenses: Other expenses to consider include travel, entertainment, hobbies, and personal care.
- Consider your risk tolerance.
Your risk tolerance is how much risk you are comfortable taking with your investments. If you are risk-averse, you may want to invest in more conservative investments, such as bonds and CDs. If you are more risk-tolerant, you may want to invest in more aggressive investments, such as stocks.
Your risk tolerance will also affect how much money you can withdraw from your retirement savings each month. If you have invested in conservative investments, you will need to withdraw less money each month to ensure that your savings last. If you have invested in more aggressive investments, you may be able to withdraw more money each month.
- Create a retirement income strategy.
Once you have estimated your expenses and considered your risk tolerance, you can create a retirement income strategy. This strategy should outline how you will generate income in retirement. In addition to Social Security and your 401(k), you may also want to consider other sources of income, such as annuities, part-time work, or rental income.
Your retirement income strategy should be flexible enough to adapt to changes in your circumstances. For example, if you experience a health crisis or a major market downturn, you may need to adjust your income strategy accordingly.
Specific tips for your situation:
Make a plan to pay off your mortgage before retirement. This will free up more of your monthly income for other expenses.
Consider working part-time in retirement. This can provide you with additional income and help you stay active and engaged.
Invest in a diversified portfolio. This will help you reduce your risk and maximize your returns.
Rebalance your portfolio regularly. This will help ensure that your portfolio remains aligned with your risk tolerance and investment goals.
Consider working with a financial advisor. A financial advisor can help you create a personalized retirement plan and make sure that you are on track to meet your financial goals.
Additional tips:
Maximize your Social Security benefits. You can maximize your Social Security benefits by delaying retirement until age 67 or later. If you retire early, your benefits will be reduced.
Take advantage of tax-advantaged retirement accounts. If you are still working, make sure you are contributing to your 401(k) or 403(b) plan. These plans offer tax advantages that can help you save more money for retirement.
Consider Roth conversions. If you are in a lower tax bracket now than you expect to be in retirement, you may want to consider converting some of your traditional IRA savings to a Roth IRA. Roth conversions can help you reduce your tax burden in retirement.
Get long-term care insurance. Long-term care can be very expensive. Long-term care insurance can help you pay for the cost of long-term care, such as a nursing home or assisted living facility.
By following these tips, you can create a retirement plan that will help you achieve your financial goals and live a comfortable and secure retirement.
