I am planning to retire at age 66 with $800K in my IRA and $2,900 a month from Social Security. Is this possible?

The older you get, the easier it is to retire with your nest egg. You don’t have to stretch it out for as many years, and you’ll also be receiving Social Security. However, you still don’t want to retire too early.

A 66-year-old is contemplating retirement with an $800k IRA and $2,900 per month in Social Security distributions. There are a few details to consider before determining if retiring is the right decision for this 66-year-old.

Calculating Your Annual Withdrawal

The 4% withdrawal rule is a popular way to see how much you can safely withdraw from an IRA each year. The idea behind 4% withdrawals is that your portfolio can grow by more than 4% each year and recoup the withdrawal.

For an $800k IRA, you can withdraw $32,000 per year, which comes to $2,667 per month. Combine that with Social Security, and the retiree ends up with $5,567 per month before taxes. If that’s enough money to cover living expenses, then the 66-year-old is in a good position to retire. However, if this amount barely covers monthly expenses, then it may make sense to work for 1-2 more years. 

Working an extra 1-2 more years gives your portfolio extra time to grow uninterrupted. You can also contribute more money to your portfolio during those years, so you are tapping into a larger nest egg. Delaying your retirement by 1-2 years can also help you combat future inflation. Retirement can make more sense if the 66-year-old has a healthy margin between their monthly income sources and monthly expenses.

Consider High-Yield Assets

High-yield assets can give you a 4% APY or higher without the same risks and volatility as the stock market. You can earn 5% annually from some CDs without touching the principal, and 10-year U.S. Treasury Notes currently pay 4% per year. 

Locking in these rates can help you follow the 4% withdrawal rule without worrying about your principal losing value. Two downsides with high-yield assets are that they may not keep up with inflation, and your real returns are lower since interest is treated as ordinary income.

The main strength of high-yield assets is that they offer stable cash flow without the risks of the stock market. As people get older, they tend to gravitate more of their capital into low-risk assets since they don’t have as much time to recover from stock market corrections.

Speak With A Financial Advisor

Consulting a financial advisor can help you determine if your nest egg can generate enough income in retirement. Financial advisors will ask for your current expenses and assess the likelihood that your portfolio can cover you for the rest of your life. 

Your financial advisor will walk through the pros and cons, and experienced professionals can draw on past clients’ experiences. Financial advisors can bring up issues like high healthcare costs that affect many seniors. 

You don’t have to look for a financial advisor who can manage your portfolio for you. Occasional consultations can be all you need. The biggest strength of financial advisors is the personal connection, since you can’t get the personal touch just by consuming online content.

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