Retirement Reality Check: Can You Afford to Stop Working at 66?
Imagine having a nest egg of $900,000 in a Roth IRA and collecting a monthly Social Security check of $2,200. Sounds like a comfortable retirement, right? But can you really afford to stop working at 66?
The Budget Breakdown
To determine if you’re ready for retirement, start by examining your budget. What are your essential expenses, such as housing and fixed monthly costs? How much will it take to maintain your lifestyle? Compare these numbers to your projected retirement income.
The Income Equation
Let’s assume you earn the median household income of $75,000. Conventional wisdom suggests you’ll need about 80% of that income to maintain your lifestyle in retirement. That translates to $60,000 before taxes and $54,600 after taxes. Can your Roth IRA and Social Security benefits deliver?
Social Security: The Wild Card
You’ll receive $26,400 per year in Social Security benefits at 66. Since full retirement age is 67, claiming early means a 7% reduction. However, your Roth IRA withdrawals won’t be taxable, which means your Social Security benefits won’t trigger federal income taxes either.
The Roth IRA Factor
Withdrawing 4% from your $900,000 Roth IRA would provide $36,000 in year one of retirement. Add your Social Security benefits, and you’d have a combined income of approximately $62,400 – tax-free. But is that enough to support your lifestyle?
Annuity Options
Investing in an annuity could provide a guaranteed income stream. With $900,000, a representative lifetime annuity could pay around $70,440 per year. However, this income wouldn’t be inflation-protected, which means its purchasing power would decrease over time.
The Power of Delaying Retirement
What if you delayed retirement by just a few years? Your Social Security benefit would increase, and your Roth IRA could grow significantly. You could potentially generate $81,712 in year one of retirement, or even invest in an annuity that pays around $95,000 per year. Delaying retirement could provide the financial flexibility you need for a comfortable, sustainable lifestyle.
The Bottom Line
While you may be able to retire at 66, it’s crucial to carefully evaluate your budget and income projections. Delaying retirement or exploring alternative income sources could make a significant difference in your long-term financial security. Consider consulting a financial advisor to create a personalized retirement plan tailored to your needs.
Leave a Reply