Upgrade: I’m 53, have $1.4 million in my 401(k), $150,000 in savings and my home is paid off — can I afford to retire?

Upgrade: I’m 53, have $1.4 million in my 401(k), $150,000 in savings and my home is paid off — can I afford to retire?

15 Feb    Finance News

Hello Catey,

I am a 53-year-old woman who is looking to retire within the next 18 months. I currently have a home that is paid for, which I plan to use as a home base. Outside of that home, my assets are $150,000 in cash savings and $1.4 million in my 401(k). I plan to travel most of the year outside of the U.S. for the first three years of my retirement.

I hope to have a blog documenting travel/living in various places as a single mature woman. Whenever I am in the U.S., I plan to work jobs that provide a small income with insurance to offset my expenses until reaching Social Security eligibility. I am setting a budget of $30,000 annually for the first five years of my retirement, which should leave me roughly one year to work if I don’t wish to pay a penalty for early withdrawal.

Do I have enough to retire and live the life I’m dreaming of?


Dear S.D.,

As soon as I read your question, I knew I’d want to answer it, as there’s a raging debate about exactly how much people need to retire. Remember when financial guru Suze Orman threw out the figure $5 million and the internet went nuts?

Whatever the number or calculation, one thing is clear: The old $1 million benchmark isn’t going to work for plenty of people.

You, of course, have significantly more than $1 million — but you also hope to retire pretty early. So I turned to experts to get their thoughts on whether you “have enough to retire and live the life [you’re] dreaming of.”

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Here’s what they told me:

“From a math perspective, yes, you can live the life you are dreaming of,” says Mitchell Hockenbury, a certified financial planner at 1440 Financial Partners in Kansas City, Mo. — but with a major caveat: “I say math perspective because life isn’t always so clean.”

So, the math could work for you, assuming, among other things, that you have smartly invested your 401(k) funds, have saved that $150,000 in a safe spot, and can truly live on about $30,000 a year, according to the experts.

Hockenbury lays it out like this: The $150,000 in savings could indeed give you the money to live on $30,000 a year for five years, as you desire; once you spend that, you will be 58, and could work for a year and then begin withdrawing from your 401(k) without penalty.

“Presumably, you want to do so until you can take Social Security and then reduce the amount you are pulling from the 401(k). Let’s say the 401(k) maintains the current value of $1.4 million (just to be conservative). The rule of thumb is you can pull 4% as a safe withdrawal rate — that equals $56,000 pretax. Take out the taxes and it puts you ahead of your $30,000 [a year] spending target,” explains Hockenbury. “So the math works, but we are not looking at risk, or adjustments to lifestyle.”

Even if you withdraw 3% — which Corbin Blackwell, a financial planner at Betterment for Business, says may be prudent, since your retirement may be longer than 30 years — the math can work. “If you use an even more conservative 3% withdrawal rate, you should be able to safely withdraw $46,500 from your $1,550,000 retirement nest egg [this was adjusted for investment growth] each year. This should be plenty (net of taxes) to cover your $30,000-a-year spending budget in retirement. Once your Social Security benefits kick in, you have even more wiggle room. For example, if you receive the average Social Security benefit of $18,036 a year starting at age 67, more than half of your spending will be covered by fixed income,” he explains, concluding: “While it’s tricky to predict the future, and everyone’s retirement looks different, you’re in a solid financial position.”

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Of course, even though the math works, life might not work out quite as well — and you could need more than $30,000 a year to live on, especially if you have a major expense that hurts your bottom line.

Hockenbury says you should think about these, and other, questions when determining whether you can really live the life you are hoping to: Is there anyone you might need to support? How will you afford things like a long-term-care event, health insurance or medical issues? How did you calculate your $30,000-a-year living costs (for example, do they include all of the previous considerations) and will this amount work not only when you are traveling but also when you return to the states to live? This guide from investment firm BlackRock can help you figure out how much it might truly cost to live in retirement, highlighting everything from taxes to pricey one-off expenses to ongoing bills. Plus, you should meet with a financial adviser to make sure your funds are invested smartly, and that there are not other issues you have overlooked that you should factor in.

Bottom line: Figuring out whether you have enough to retire involves a far more in-depth process than simply crunching numbers. Hire a pro to walk you through it, and, when in doubt, keep saving. As certified financial planner Bobbi Rebell once told me: “No one ever complained they had too much money in retirement.”

Read on: I’m 69, worth $5 million and want great health care and a good climate, and I refuse to move to California — where should I retire?

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Plus: I’ll retire at 62 with $1.2 million and want to live in an affordable, safe place near the beach — where should I look?

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