Retiring at 65: Can Your Savings and Social Security Benefits Cover Your Expenses?
For those born after 1960, full Social Security benefits don’t kick in until age 67. However, you can start collecting benefits between 62 and 67, albeit with reduced payments. If you’re planning to retire at 65, a crucial question arises: Will your savings and potential Social Security benefits be enough to cover your monthly expenses?
Calculating Your Social Security Benefits
One of the most certain aspects of retirement planning is calculating your Social Security benefits. You can know exactly what you’ll receive, adjusted for inflation, year over year. If you retire early or late, the Social Security Administration provides clear guidelines for adjusting your benefits.
Assessing Your Portfolio Income
Your portfolio income is typically the largest segment of your retirement planning. Although less certain than Social Security, it generates more income for most people. With $940,000 in your pre-tax IRA, the main question is what your portfolio might look like by age 65 and what kind of returns it can maintain during retirement.
Investment Options: Bonds, Annuities, and Stocks
You have several investment options to consider:
- Bonds: With a 5% annual yield, your IRA could grow to $1.2 million by age 65, generating $60,000 per year in income.
- Annuities: Investing $940,000 in an annuity could provide a guaranteed monthly income of $7,566 per month, or $90,792 per year, for life.
- Stocks: Investing in a well-indexed S&P 500 fund could generate an average return of 11% per year, potentially growing your portfolio to $1.58 million by age 65, with annual returns of $173,800.
Tax Considerations
Remember to factor in taxes on your withdrawals or income from your IRA and Social Security benefits. You may also need to take Required Minimum Distributions (RMDs) starting at age 73. Converting your traditional IRA to a Roth IRA can eliminate income taxes and RMDs, but this would involve paying up-front conversion taxes.
Seeking Professional Guidance
A financial advisor can help you navigate these complex decisions, build a tax and retirement strategy, and ensure your savings are ready for retirement. With their expertise, you can balance long-term security with growth during this stage of your life.
Preparing for the Unexpected
Finally, don’t forget to keep an emergency fund on hand to cover unexpected expenses. A high-interest savings account can provide a liquid, low-risk option for your emergency fund.
By carefully considering your Social Security benefits, portfolio income, investment options, and tax requirements, you can confidently plan for a comfortable retirement at 65.
Leave a Reply