Retiring Early: A Realistic Goal for a 46-Year-Old Divorced Dad?
Reaching early retirement requires careful planning, especially when considering the potential risks, changes, and needs that come with mid-life obligations. For a 46-year-old divorced dad with $460,000 saved in his 401(k), retiring in 10 years might seem achievable, but it’s essential to examine the feasibility of this goal.
Assessing Retirement Income
To determine if early retirement is possible, we need to evaluate the potential income generated from the existing portfolio and Social Security benefits. With a balanced portfolio and Social Security income, this individual’s 401(k) is on track to support a comfortable lifestyle in retirement. However, to retire at 56, we need to crunch some numbers.
Projecting Savings Growth
By contributing the maximum amount to the 401(k) each year, including catch-up contributions after age 50, and assuming an average annual return of 11%, the projected savings growth looks promising. By age 56, the estimated value of the 401(k) could reach $1.76 million. This amount could potentially fund an early retirement, depending on how it’s managed and the risks mitigated.
Bridging the Gap to Social Security
To make early retirement a reality, it’s crucial to consider how to bridge the gap between retirement and Social Security benefits. Withdrawing 2.7% per year from the 401(k) could provide a sustainable income stream, but it would require living on a reduced income until Social Security benefits kick in. Delaying Social Security benefits until age 70 could help offset the impact of inflation and increase the overall income in retirement.
Addressing Obligations and Risks
As a divorced dad, there are additional costs to consider, such as alimony, child support, and healthcare expenses. These fixed costs will impact the retirement budget and need to be carefully planned for. Furthermore, inflation risk must be addressed, as prices are likely to more than double over the course of a 30- to 40-year retirement. Investing in assets that grow with inflation, such as equities, and structuring Social Security benefits to hedge against price increases can help mitigate this risk.
Health Insurance Needs
Another critical consideration is health insurance. Without employer-sponsored coverage, this individual will need to purchase private insurance to cover the period before Medicare eligibility at age 65. Budgeting for these expenses is essential to avoid unexpected costs ruining the retirement plan.
Is Early Retirement Realistic?
Ultimately, the feasibility of early retirement depends on careful planning, investment choices, and risk mitigation strategies. With a comprehensive plan in place, it’s possible to achieve an early retirement, but it’s essential to consider the potential trade-offs and adjustments required to make it a reality. Consulting a fiduciary financial advisor can help create a tailored plan to achieve this ambitious goal.
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