Retiring at 65: Can Your Nest Egg Support Your Dreams?
A Solid Foundation: Social Security Benefits
With $2,800 in monthly Social Security benefits, you’ve got a reliable financial foundation to fund your retirement. This benefit adjusts annually to keep pace with inflation, providing a sense of security in an uncertain financial universe.
Unlocking Your IRA’s Potential
But what about your $850,000 IRA? How much income can you expect it to generate each year? One popular approach assumes a 4% withdrawal rate from a balanced portfolio, adjusting for inflation, to make your money last 30 years or more. This could translate to $34,000 in your first year, with subsequent withdrawals increasing by 2% annually.
Exploring Income Options
You could also consider other income sources:
- Cash and Certificates of Deposit: Earn 5% interest, or $42,500 per year, without touching the principal.
- Long-term Fixed-Income Securities: Ten-year U.S. Treasury Notes currently pay 4% interest semi-annually, generating $36,400 in annual income.
- Stocks: Historically, the S&P 500 Index has returned nearly 10% per year, but fees, volatility, and other factors may lower actual returns.
- Annuities: Contracts with insurance companies can guarantee a set monthly payment for life, but come with high fees and complexity.
Income Projections: A Wide Range of Possibilities
These income options could produce between $34,000 and $85,000 per year, in addition to your $33,600 Social Security benefits. Your total income could range from approximately $68,000 to $119,000, although the top end relies on your portfolio generating an average annual return of 10%.
The Other Side of the Equation: Expenses
But how much will you need to spend in retirement? Your expenses can vary dramatically based on lifestyle, location, travel, and other factors. According to the Bureau of Labor Statistics, the average income of people between 65 and 74 years old in 2022 was just over $68,000, while they spent almost $61,000 per year.
A More Individualized Approach
A detailed post-retirement budget can help you estimate your expenses more accurately. Housing is often the biggest expense, followed by food, taxes, and medical care. You may want to aim to replace 55% to 80% of your pre-retirement income, depending on your circumstances.
Finding the Right Balance
To guide your retirement decision, carefully evaluate your appetite for risk and your ability to be flexible about expenses. A financial advisor can help you calculate your income needs and asset potential. Alternatively, you can use online tools, such as SmartAsset’s Retirement Calculator, to get a free, customized projection of your retirement readiness.
Planning for the Unexpected
Remember to keep an emergency fund on hand to cover unexpected expenses. A high-interest savings account can provide a liquid, low-risk source of funds, although its value may be eroded by inflation.
By carefully considering your income and expenses, you can make an informed decision about retiring at 65 and create a sustainable financial plan for the years ahead.
Leave a Reply