Retiring at 66 with $900,000 in a Roth IRA and $2,200 in Social Security benefits likely is a reasonable plan for many retirees. The income you could reasonably expect to generate from your Roth withdrawals, coupled with your Social Security benefit, probably will be somewhat more than the typical retiree’s expenses. You can likely expect to be able to pay your bills as long as you live without taking on undue risk of running out of money. This is not a guarantee, however. High inflation could eat into the purchasing power of your Roth withdrawals, or you might experience unexpected expenses, such as for long-term care.
A financial advisor can help you assess your risk and develop a plan for financing a comfortable and secure retirement.
To start with the income side of your retirement budget, you could likely withdraw $36,000 from your Roth IRA the first year of retirement, then increase that amount by the annual rate of inflation every year thereafter. This is the prescription of the 4% rule, a guideline followed by many financial planners that suggests you can withdraw that percentage of a conservatively invested portfolio yearly for approximately 30 years with only minimal risk of running out of money. Since $900,000 times 4% is $36,000, this is the indicated amount of your first annual withdrawal. For subsequent years, you’ll have to make assumptions about your portfolio growth and inflation rates to calculate an appropriate withdrawal.
Your Social Security is similarly straightforward, up to a point. One strong plus of Social Security is that it is inflation-adjusted, with benefits increasing each year according to a cost-of-living adjustment. One potential downside of relying on Social Security is that at a future point, currently estimated to occur at around the year 2035, it may be necessary to reduce Social Security benefits by approximately 20%. It is far from certain that this will happen, as there are numerous fixes available, but it is a possibility. For the moment, assume that your annual retirement income will be $62,400, consisting of $36,000 from your Roth and $26,400, equal to $2,200 monthly, from Social Security.
A financial advisor can help you calculate projections of your retirement income based on different scenarios. Get matched with a financial advisor for free.
Your expenses in retirement can vary widely according to your specific location, health status and preferred lifestyle, among other factors. To start with location, the amount of annual income retirees live on in the United States ranges from $20,542 in Indiana to $36,023 in Alaska. Overall, retirement income averaged $27,617, but that included the District of Columbia, a significant outlier where retirees average $43,080 in annual income.
At $62,400, your projected annual retirement income is comfortably more than any of these figures. As a result, you probably can expect to be able to afford a better-than-average lifestyle no matter where you reside. If you need to reduce your expenses in retirement, however, relocating to a lower-cost state or city can make a sizable difference in the lifestyle you can afford.
The financial impact of your health status is another important factor. Your healthcare costs in retirement can vary widely depending on your personal health status. On the high end, retirees may spend 15% or more of their income on health-related expenses. Maintaining a healthy lifestyle, getting regular checkups and looking into long-term care insurance and Health Savings Accounts can help moderate the financial effect of health as you age.
Lifestyle choices can make a huge difference in how affordable your retirement is. Retirees typically spend somewhere between 55% and 80% of their pre-retirement income after they stop working. This is a wide range and your personal preferences are likely to be the primary factors determining whether you are on the high or low end of that range.
In addition to location, your desire to travel and enjoy entertainment and recreational opportunities are likely to have a large effect on affordability. Many retirees travel less and participate in fewer entertainment and recreational activities as they age.
Talk to a financial advisor about the potential in your retirement. An advisor can help devise an efficient plan based on your goals and circumstances.
Your projected retirement income suggests you will can afford a comfortable retirement in most circumstances. Your desired retirement location, health status and lifestyle choices all play major roles in how affordable your lifestyle will be. There inevitably wild cards in the form of potential future Social Security benefit cuts and your own health status. However, in most situations you are likely to find you can afford to retirement at 66 and enjoy a comfortable lifestyle.
A financial advisor can help you make wise choices when balancing concerns such as location as you plan your retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s Retirement Calculator offers a quick and informative way to estimate how affordable your selected lifestyle will be after you stop working.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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