And if not, how can I retire now anyway?
You just got out of yet another meeting with your jerk boss…
Or, it’s Monday morning and you can’t face another week at your soul-sucking job…
Or, you’ve been scrolling through your Facebook feed or Instagram and can’t stop fantasizing about traveling to all those exotic locations (once it’s safe again)…
Or, … fill in the blank with why you personally have absolutely had it with work and want to finally stop.
You’ve been saving as much as you can for as long as you can remember, and your portfolio finally crossed that $500k or the quasi-mythical $1 million mark (kudos, because that’s 3 to 6 times the $172k median retirement savings for Americans in their 60s!).
So, can you safely retire now? Finally?!
The answer is… yes, but…
When Can I Retire?
Finally fully vaccinated, I met with a couple of friends for lunch, our first time together in person in well over a year.
The weather was perfect. Blue spring sky. Warm air, low humidity, and a light cooling breeze. Below, an incredible view of the water. Delicious seafood.
And it all paled next to just being with friends in person.
We chatted about work, other friends, and our plans for the future. That last led to a natural question for our age group – all in our 50s – when we can retire. It isn’t that we don’t all enjoy what we do, but you reach a point where you want to be free to do whatever you feel like without having to answer to a boss or clients.
My personal answer, in about 7-8 years, surprised them.
They both felt I should be able to retire much sooner than that. It got me thinking, and when I got back home, I looked at the numbers with fresh eyes.
My conclusion? I could retire today (!), but… I’d have to make some painful choices to cut our expenses, and retirement wouldn’t be as comfortable as I’d prefer. Yet, we could do it.
Alternatively, if work continues as it is and the stock market does reasonably well, we could retire in 4-5 years without too much sacrifice. Staying the course for those 7-8 years would let us travel more, be more generous with our kids and (future) grandkids, donate more to charity, and in general have an incredibly comfortable retirement. Truly, I feel privileged.
What Would It Take for You to Be Able to Retire Now?
As I wrote elsewhere, it’s possible to retire on $500k, $1 million, or $2 million, with certain caveats.
One couple, the Kaderlis, retired in 1991 at age 38 with $500k, which in today’s money is about $1 million. Doing the same today on $500k would be far harder. However, if you’re 60, you could claim (reduced) Social Security benefits in just 2 years. You also have 22 fewer years in retirement to consider.
The Center on Budget and Policy Priorities (CBPP) reports that the average Social Security benefit in 2020 was about $18,170 a year.
If you have a $500k portfolio, you could plausibly draw $20k a year now, and adjust for inflation each year. That’s based on the so-called 4% rule, based on retirement research from the 1990s. If most of your expenses in retirement are likely to be non-discretionary, and you don’t have much in the way of guaranteed income, you probably want to reduce that to 3.5% or even 3%. That translates to about $17.5k or $15k a year.
Add that to your Social Security benefits (get your personalized estimate from the SSA), which we’ll assume is the above-mentioned average, and you can retire at your full retirement age, 67 for most workers now, if your retirement budget is no more than $38k a year.
However, your Social Security benefit would be cut by 30% if you claim at age 62. That would reduce the average benefit to $12.7k, so your maximum retirement budget at age 62 would need to be no more than $32.7k a year.
If you’re intent on retiring right now, at age 60, you’d need to finance 2 years of your budget without Social Security benefits, which would likely eat up around $25k of your portfolio’s value. That would reduce your long-term draw by about $1000 per year, reducing the budget you can afford to $31.7k a year.
What If Your Budget Is Too High to Fit Those Numbers?
Here are 3 things you can do to improve things.
First, obviously, cut expenses. Since most of us spend the largest amounts on housing and transportation, moving to a less expensive home that’s close to everything you need most days (shopping, restaurants and cafes, entertainment venues, family, etc.).
Not only would your housing costs be lower, but you could do with one car instead of two, or no cars at all, reducing your transportation costs. Finally, since housing and car expenses are mostly non-discretionary, you’d be able to increase your safe draw somewhat, say to 4% or even more.
Second, you could also consider moving to a country with a much lower cost of living, or traveling between many such countries if you like the nomadic lifestyle. As long as you take into account things like accessible and affordable healthcare, and assuming you don’t need to spend a lot of money traveling to see family, this could be a great solution.
Third, you could reframe what retirement means to you. If you’re longing to retire to get away from a soul-sucking job or a terrible boss, maybe you can quit and find something you truly enjoy doing, even if it brings in much less than your current salary.
For example, if you find something fun to do that brings in even $1000 a month, you’d both increase the budget you can cover, and reduce the amount of leisure time you need to fill which likely reduces your costs.
The Bottom Line
I could retire today, if I’m willing to cut our retirement budget fairly painfully. I could retire in 4-5 years, let alone in 7-8 years without such draconian cuts.
If you’re 60 and want to retire now with a $500k portfolio, you may be able to do it, if you can live in retirement on just over $30k a year. If you can’t or don’t want to squeeze your budget and the retirement it enables that far, the above offers 3 viable paths to make it work, and you can even combine 2 or all 3. Obviously, the changes you’ll need to implement will be smaller if you put off by a few years the date when you call it a career.
This article is intended for informational purposes only, and should not be considered financial or legal advice. You should consult a relevant professional before making any major decisions.
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