I am 43 years old and a divorced father. I have $315,000 in a traditional Individual Retirement Account (IRA), $90,000 in a Roth IRA, $22,000 in a Health Savings Account (HSA), $8,000 in a 529 College Savings Account, and $30,000 in a traditional $401K electronic bond. , $25,000 in US electronic bonds, $40,000 invested in exchange-traded funds (ETFs) and $20,000 in cash. I get a maximum 401(k) employer and family HSA every year. At age 57, I’d like to stop most of my full-time work and start moving money from my traditional IRA to my Roth IRA, up to standard deduction, each year. I will try to live on non-taxable income during that time until at least age 62. I’d then like to maintain that by living on my Roth accounts until age 67, at which point I’d have Social Security, which would be about $3,500 per month which is pretty close to my actual monthly expenses. Am I exaggerating?
– Jacob
First of all, I want to commend both the savings that have already accrued and the amount of thought you put into this plan. All of this work has put you in a great position to be able to retire on your own terms.
So, are you on track to retire at 57? Do you overdo it? lets take alook. (And if you’re looking for help with your financial question, This tool can help match you with potential advisors.)
Back-of-the-envelope mathematics
For a quick look at your investment and savings situation, you can use the 4% rule And make some assumptions about your investment returns to see if you’re on the right track.
The 4% rule states that when you retire, you can withdraw 4% of your total retirement savings each year, adjusted for inflation, with minimal risk of running out of money. You may not want to bet your entire financial plan on this rule, but there is a lot of research behind it. Using the 4% rule is a good way to know if you are on the right track.
If you start at age 43 with $522,000 in retirement savings (I’m excluding your cash and 529 savings account because they are for other purposes), and assume an inflation-adjusted annual rate of return of 4% with annual contributions of $29,700, up to age 57 with $1,468,936 across your various investment accounts.
Applying the 4% rule to that $1,468,936 balance, you’d be able to withdraw $58,757 annually, which seems like it should be enough to make ends meet.
Of course, this is a simplified calculation that doesn’t take into account Social Security or taxes, so let’s dig deeper. (Looking for help with a financial question? This tool can help match you with potential advisors.)
Use the SmartAsset Retirement Calculator
For a more aggressive look, I used SmartAsset Retirement Calculator And you entered all the details you provided in your question. Your annual expenses have been estimated at $60,000.
According to this calculator, you’ll need $1,342,034 to retire at age 57 and you’re on track to get $1,516,049. So again, it looks like you’re on the right track to achieving your goals. (Looking for help with a financial question? This tool can help match you with potential advisors.)
Additional considerations
While all of the above indicates that you are in very good shape, there are certain variables that we did not consider above.
One of the big variables is College cost. There is a wide range of possibilities out there, from paying nothing to spending $70,000 or more per year at a private university. And while you do have some savings for college, large college expenses may force you to dip into retirement savings, which may require you to either work longer or reduce your retirement spending.
There are also a lot of things about your situation that can change over the years, from your job to your health to the investment returns you receive to your personal goals. No financial plan, no matter how good, is a finished product and it’s important to reevaluate regularly to make sure you’re still on the right track.
When it comes to your withdrawal plan, especially in your early years of retirement, I’d also be careful to make tax minimization very high as a priority. (Looking for help with a financial question? This tool can help match you with potential advisors.)
You definitely don’t want to pay more than you have to, and being tax conscious in your approach is the right idea. But it can be smart to have some taxable income in those earlier years to fill in those lower tax brackets, which could allow you to avoid higher tax brackets down the line and actually pay lower taxes in the long run.
I would also consider the possibility that living on cash and bonds for the first few years of retirement may cause your overall asset allocation to be more conservative than it needs to be for your goals and Take risks. It can certainly make sense to keep ample cash reserves so as not to be vulnerable to market movements in the short term. But being too conservative may result in sacrificing long-term growth and security. And remember, paying taxes only means your money has grown, and that’s okay.
Of course, it’s also important to acknowledge that there are many details about your situation that I don’t know, so I’m certainly in no position to give you specific advice on withdrawal strategies and taxes. These are just things to keep in mind as you continue to adjust your plan.
next steps
You seem to be on track to achieve your major goals with wiggle room to overcome the unexpected, which is where you want to be. As long as you keep reviewing and saving your goals and making adjustments along the way, you should be in good shape.
Investment and retirement advice
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If you have questions specific to your investment and retirement situation, a A financial advisor can help. Finding a financial advisor doesn’t have to be difficult. Free SmartAsset tool It matches you with up to three vetted financial advisors serving your area, and you can interview your own advisors at no cost to determine which one is right for you. If you are ready to find a counselor who can help you achieve your financial goals, let’s start.
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While planning for retirement, keep an eye on Social Security. Uses SmartAsset Social Security Calculator To get an idea of what your benefits could look like in retirement.
Matt Baker, CFP®, is a SmartAsset financial planning columnist and answers readers’ questions about personal finance and tax topics. Do you have a question you would like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Matt is not a participant in the SmartAdvisor Match platform, and has been compensated for this article.
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