The answer to this question, as always, is, "It depends."
In order to know whether this person can retire, we will need to know a few more details. For educational purposes, let’s use the following figures:
- Monthly expenditures: $3500
- Interest rate on home: 4%
- Any big expenditures coming up soon: No
- When do you plan to take Social Security: Immediately upon retirement
- What were your earnings in the last year you worked: $60,000
- Do you have any other forms of debt: No
Can this person retire based on this?
First, let’s look at what is going to be coming in.
- Around $1500/month will be generated from the IRA based on the 4% rule
- ~$1556 from Social Security
- $300 from the pension
This brings total monthly income to $3356, which is less than the $3500 needed for expenses.
What are the options?
This person has a few things to consider in this scenario:
- 1. Waiting another year to take Social Security. This would increase benefits to ~$1706, bringing total income to $3506.
- 2. Working part time to make up the $144 difference. It doesn’t take many hours to net a couple hundred bucks in a month.
- 3. Simply hang it up and take an additional $144 out of the Roth — that wouldn’t be the end of the world, especially with a good manager.
In summary, there is some flexibility for what someone can do when they are looking to retire. It is important to make a realistic budget for expenses, and then to consider what income will be before making the official decision.
- 1. The 4% rule is an industry standard that says that a retiree should live off of ~4% of savings every year to keep pace with inflation and cover fees.
Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.
