I’m 58 years old and have $700,000 in my 401(k) and IRA. I have no credit card debt, no car loan payments, no student loan payments. I sold my California home and paid cash for my Texas home so I don’t have a mortgage. I am a military veteran and my monthly income after taxes is approximately $2,200. My living expenses are $3,000 a month, including property taxes. In my situation, how can I cover all my living expenses without working? I can’t receive social security for 7 years.
– Derrick
It seems to me that you have done a great job of saving money and putting yourself in a position to support your needs throughout. retirement, even in the pre-Social Security years. However, you’re not yet eligible to take penalty-free withdrawals from your retirement account, so you’ll need to think about how best to cover your monthly cash flow needs until you reach age 59.5. (Need more help with your retirement planning? Consider consulting a financial advisor. )
make up for the deficit
Between my monthly take-home pay from the military ($2,200) and my monthly living expenses ($3,000), I have an $800 monthly deficit that I have to cover with a combination of savings and eventually Social Security. yeah. That’s $9,600 per year.
Let’s ignore it for now social security I won’t be collecting them for a few years. But more on this later.
of 4% rule You can withdraw 4% of your balanced retirement portfolio each year with little risk of depleting your funds. In fact, depending on the performance of your investments, you may end up with more money than you started with.
Applying the 4% rule to $700,000 in a retirement account means you can safely withdraw $28,000 in your first year of retirement. The rules also require subsequent withdrawals to be adjusted annually for inflation.
It’s important to note here that the 4% rule is just a rule of thumb.There are many reasons why it makes sense to do so. Adjust withdrawal rate up or down Based on your specific situation.
But in this case, the $28,000 you can safely withdraw is much higher than the $9,600 you need, so I would feel very safe if I were you. As long as you stick to what is reasonable and consistent. investment plan Annual withdrawals typically range between $9,600 and $28,000, so you’ll need to have enough funds to cover your needs. (Need help planning your future retirement withdrawals? Consider matching with a financial advisor. )
place to withdraw money
The important thing to note here is that since you are 58 years old, you are not allowed to consume: Eligible withdrawals You can take money from your retirement account until you reach age 59.5. This means that your withdrawals may be subject to an additional 10% penalty between now and then.
Assuming you just turned 58, you have 18 months left until you reach age 59.5. At $800 per month, you would need a total of $14,400 in addition to your military income to earn the income. Withdrawal without penalty.
So how can you afford that $14,400? There are several options.
First, you may have enough Checking and savings This is the account that will get you through the next 18 months, or at least the period in between. I would like to start from there.
next, Roth IRA, You can withdraw up to the amount you contributed at any time, for any reason, without taxes or penalties, even before you turn 59.5 years old. That’s the next best option for dealing with the next 18 months.
Finally, you can withdraw your money at any time. 401(k) or traditional IRA and pay a 10% penalty. It’s not ideal, but depending on how much you need to withdraw to cover your taxes, he’s talking about a $2,000 penalty and a penalty on top of $14,400, depending on how much you need to withdraw to cover your taxes. Of course, it would be better not to have to pay that amount, but given your position, I don’t think it would significantly impact your ability to support your retirement needs. (A A financial advisor can help Consider further your retirement options. )
What about Social Security?
In a few years, you too will be eligible to receive Social Security benefits, and things will become even more favorable.
Use of SSA quick calculator, I entered my date of birth as October 1, 1965, my retirement month as October 2023, and my income for the year as $40,000. Using these variables, a 62-year-old’s estimated monthly benefit would be $959 in today’s dollars (or $1,127 for him in inflation-estimated dollars).
That $959 would probably be enough to cover the entire $800 deficit, but that depends on the specifics of your tax situation. Either way, it seems likely that once you start collecting Social Security, you won’t even need to make regular withdrawals from your retirement account eventually. RMD.
Of course, you can also postpone until you receive Social Security benefits. full retirement age If you are 67 or older, or up to age 70, the monthly benefits you receive will increase. I’m sure you have the retirement savings to do either of these things. So it’s just a matter of crunching the numbers and deciding which route is most comfortable for you. (Need more help planning your Social Security? Consider consulting a financial advisor. )
conclusion
The important thing here is that you are in very good physical condition. Even without Social Security, you have enough retirement assets to cover your needs. And once Social Security kicks in, you may not need to tap into your retirement assets as much.
The worst-case scenario I can think of is potentially paying a 10% penalty for early withdrawals from a 401(k) or traditional IRA to cover your needs before age 59.5. But considering your situation, even that should be only a minor inconvenience.
Tips for finding a financial advisor
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Find a financial advisor It doesn’t have to be difficult. SmartAsset Free Tools , we match you with up to three vetted financial advisors serving your area. You can also have a free introductory call with an advisor to decide which advisor you feel is a good fit for you. Are you ready to find an advisor to help you reach your financial goals? Get started now.
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Consider several advisors before deciding on one. It’s important to find someone you trust to manage your money. As you consider your options, you may consider the following: Questions to ask your advisor To ensure you make the right choice.
Matt Becker, CFP®, is a SmartAsset Financial Planning columnist and answers readers’ questions about personal finance and taxes. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com. Your question may be answered in a future column.
Matt is not a participant in the SmartAdvisor Match platform and receives compensation for this article.
Photo credit: ©iStock.com/Fertnig, ©iStock.com/Larisa Stefanuyk
post Ask an Advisor: How can I cover $3,000 in monthly living expenses? I’m 58 years old and have $700,000 in retirement savings, but I won’t be collecting Social Security for 7 years It first appeared SmartRead with SmartAsset.
