Retiring at 62: Can $1 Million in a Roth IRA and $2,250 in Social Security Benefits Be Enough?
The Dream of Early Retirement
Imagine having $1 million in a Roth IRA and receiving $2,250 each month from Social Security when you turn 62. Can this be enough to support your retirement dreams? The answer is yes, but it may require some careful budgeting and financial planning.
The Numbers
With this scenario, you can expect to live on about $67,000 per year, or approximately $5,583 per month. This includes $2,250 from Social Security and withdrawals from your Roth IRA using the 4% rule annually. However, there are many unknowns to consider, such as your marital status, state and city of residence, taxes, and life expectancy.
The Roth IRA Advantage
One significant advantage of having a Roth IRA is that you’ve largely taken taxes out of the picture. This means your effective income will be boosted considerably. As Kevin Caldwell, CFP, notes, “The math is easier. Basically, no taxes on any of it.” With a straight 4% withdrawal from your Roth IRA and only 50% of your Social Security taxed, your taxable income is less than even an individual filer’s standard deduction.
The Reality Check
While $67,000 per year may be a liveable income in many areas of the country, it’s a significant step down from the six-figure income you likely had during your working life. To make ends meet, you’ll need to keep your spending tight, which can be challenging, especially for married couples.
The Concerns
There are two major concerns with this scenario. First, you may outlive your savings, especially if you live past 90 years old. Second, sticking to a disciplined budget can be difficult and may not be enjoyable in early retirement.
The Alternative
Waiting until full retirement age, 67, could be a better option. By delaying retirement, you’ll give your Roth IRA more time to grow tax-free, and your Social Security benefits will increase. According to Vanguard, your Roth IRA could be worth up to $1.5 million by age 67, allowing you to withdraw $60,000 annually. Adding in your increased Social Security benefits would boost your retirement income to around $96,000 per year, providing a more comfortable lifestyle.
Seeking Professional Guidance
If you’re considering retiring at 62 or waiting until full retirement age, it’s essential to consult with a financial advisor. They can help you build a comprehensive retirement plan, estimate how long your savings may last, and provide guidance on managing your assets.
Finding the Right Financial Advisor
SmartAsset’s free tool can match you with up to three vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one is right for you.
Leave a Reply