I'm 60 with 1.4 million saved can I retire

let's say you're 60 years old you want to retire you've saved 1.4 million dollars in your retirement accounts and you want to know if you have enough let's create a very simple plan together in the retirement budget calculator so that you can look to see if you have saved enough number one and number two we'll play with the numbers a little bit to see how much you can spend and not run out of money in retirement so if you're ready let's dive in okay so here we are we've got john and nancy he was born in 1962 she was born in 1962 they're both 59 years old and you will notice that we are planning to have them retire december 31st of 2022 so by the end of this year they'll be 60 years old now one of the things that we made an adjustment to in this particular example is we're saying that he's going to live to age 89 she's going to live to age 92. okay now in terms of assets and liabilities they've done a good job saving he has one million dollars saved in his uh 401k she has 400 000 saved she had convert she converted all of her ira money to her roth so she has four hundred thousand dollars it's all in the raw you'll notice the withdrawal order here we're going to assume that we tap into his 401k first and her roth account second and then we'll apply a custom rate of return so we'll say his money grows at four percent per year her money grows at five percent per year they also have a house that's valued at five hundred thousand dollars they do have a little bit of a mortgage still outstanding so a hundred thousand dollars that's not going to be paid off until 2024 remember we're assuming that they're going to retire december 31st of 2022 so that means they're going to have a mortgage for a couple of years the first couple of years of retirement now the next big number that we need to know in this scenario is their income right now he has wages of seven thousand dollars per month but that's only going to last until december of 2022 and then he's going to postpone taking his social security he's estimating it's going to be about three thousand dollars per month at age 70. so there's going to be a 10-year gap there where he doesn't have any social security but she is going to start her social security when she turns 62. so starting in april of 2024 she's going to turn that social security on and in both cases we'll assume their social security increases at two percent per year now they are going to withhold a little bit for taxes so 500 per month is going to go into their tax account and we made their budget really simple now of course we want you to be as detailed as you can regarding your spending because that's what's going to give you the most confidence but in this really simple scenario we said their expenses are 5 000 per month except for that mortgage they've got a thousand dollars a month going out on the mortgage and that is going out on autopay you'll notice we have the mortgage payment ending in december of 2024 so when that gets paid off then their expenses will only be five thousand dollars per month and you'll see how this all works together here in just a minute as we're trying to model whether or not they've saved enough of course one of the things that we're doing in the retirement budget calculator is estimating your taxes each year and what we want to do now is go over to the future view to try to answer this question so a couple of things we're assuming right now number one that their money and their retirement accounts is just growing at three percent per year and we're ignoring that custom rate of return that we had input on their assets we can select that if we want to but for now we're just going to assume their money is growing at three percent per year we're going to look at all of their expenses and then anytime there's a surplus we're going to assume the surplus gets spent that they're not saving anything additional so here they are 60 years old they have good income this year all year we're estimating their taxes to have an effective tax rate of about seven point eight one percent you can see in in this first year because he's working all year long their net income is seventy seven thousand their expenses are seventy two thousand so that gives them a surplus of five thousand four hundred and thirty nine dollars but in this example we're going to assume that that is not being saved it's just that surplus is being spent so you can see they have 1.4 million and that money is growing at three percent per year now if you click on a row you can see more details so you can see his 401k and her roth ira each growing at three percent per year next year you'll notice their income drops to zero because her social security hasn't started yet and he's retired so he has no more income we're still estimating taxes because remember in year two the first year of retirement they need to take 79 864 out of their of his 401k that's how we're going to assume that they're coming up with the money to supplement their cash flow needs their expenses are 73 800 and of that 73 800 they're going to have an additional six thousand sixty four dollars doing taxes so that's how we end up with a withdrawal of seventy nine thousand eight hundred and sixty four dollars and you'll notice all of that withdrawal is coming out of his 401k so we take the withdrawal and then we multiply it by three percent and at the end of the area is nine hundred and seventy eight thousand six hundred and forty dollars remaining now you'll notice here in 2025 remember that mortgage is getting paid off in 2024 december of 2024 so in 2025 their budget drops down to just 65 563 when adjusted for inflation because remember we're increasing their expenses every year by three percent inflation in this particular scenario so 65 000 67 000 69 000 and these are the withdrawals that are needed you'll notice this is when social security kicks in for her it started at age 62. and then you'll notice when he turns 70 they're going to get a a big bump and his social security is going to kick in so combined they're going to have 57 000 of social security income at that point which means their portfolio withdrawals will be much less only twenty four thousand nine hundred and forty eight dollars and then the other thing that we're taking into consideration here that the calculator is automatically doing is calculating his required minimum distribution so when you turn age 72 you have to begin taking money out of your iras and 401ks so in his example he's going to have to take 25 418 out but that rmd isn't going to be enough to cover the shortfall so they're going to have to take an additional 2 83 out of the 401k to cover all of their expenses that year so you can see what happens we run the numbers down and we get all the way to age his life expectancy at age 90. the blue line represents his life expectancy the pink line represents her life expectancy and you can see based on some very conservative assumptions three percent inflation three percent return on their money they get all the way out to age 92 and they still have resources remaining in their accounts so the next thing we want to do is we want to see how do they diversify this money using a bucket strategy well when they first retire the idea with a bucket strategy is to have some money that's low risk so the first three years of spending is going to be low risk and then the more time they have the more risk they can afford to take so that's how they could consider diversifying their money as they begin to enter into retirement the other thing they want to do though they're curious just how much money can they spend without potentially running out of money in retirement so they come back over here to the budget tab they go to their expenses and they say okay this is based on if we're spending five thousand dollars per month and our expenses for inflation are growing at three percent per year and our money is growing at three percent per year so what if we increase this to six thousand dollars per month to start and then we increase their their inflation factor by three percent per year so you can see we go back over to the future now and everything remains the same except we're starting with that higher spending amount and in this scenario we get them down this yellow line represents the line they deplete their resources down to zero so you can see if they start out spending six thousand dollars per month they get at age 90 he has 79 000 left they deplete all the resources down to zero and the wife dies at 92 and basically there are no more liquid investable assets remaining and they say well that's pretty good but what if we want to spend even more so they come back over to the budget data tab and they say you know let's increase this to seven thousand dollars per month and then see what happens and we come back over to the future view and you can see that's going to put even more pressure so now they've depleted all their resources at age 83 and their life expectancy is 90 and 92 so in that case they've run out of money much earlier than what they had planned now let's say that they want to spend more in the early years and then they want to drop the budget down so in that example what we would do is we say okay we're going to spend seven thousand dollars a month for the first 10 years so we'll say that that ends in december of 2032. december of 2032 is how long they will spend seven thousand dollars and then we'll say all expenses starting in 2032 or 20 january of 2033 will drop back down to 5 000 per month so in those go-go years they're going to spend more and then in the slogo years they'll spend less so we'll say that's going to start in january of 2033 and there will be no end to it so up here now we have seven thousand dollars a month that they're going to be spending from january of 2022 until december of 2032 and then in january of 2033 they're going to drop their budget down to just five thousand dollars per month and that that's going to continue through the rest of their life so let's look at that scenario now to see how that would work out for them again this is assuming that their money is only growing at three percent per year so you can see uh 2032 they're spending more these early years of retirement we get out to 2033 and we drop the budget down to just 60 000 a year is all they need and then adjust that for inflation each year and you can see that now we run the numbers and we get them all the way down to age well beyond life expectancy and they still have plenty of money there what if we don't drop it that far down what if we say on the budget we take that 5 000 and we say what if they want to spend 6 000 per month how would that work come back over here and we say well even that so we have the higher spending initially the lower spending starting after 10 years of retirement and we're able to get them all the way down to age 92 and they have not depleted their portfolio down to zero so as you can see you've got a lot of ways that you can use the retirement budget calculator to run different scenarios to create different models now remember this is assuming that simple growth rate over on the assets and liabilities tab we had said what if his 401k grows at four percent per year hers grows at five percent per year well over here on the future view we can change this to allow custom rates of return so instead of assuming three percent now now we're assuming that four percent five percent growth rate you can see that right here and under that scenario we get them all the way to a place where at age 92 they have 1.9 million but we all know that it's unlikely that they're going to just have a constant rate of return every year so what if we want to model what a 60 stock 40 bond portfolio would have looked like and we use a bad timing sequence of returns and we see how long their money would last under that kind of scenario using a bad timing sequence of returns and you can see wow they end up with a lot of money in that scenario what if we go even more conservatively say 50 percent and assume a bad timing sequence of returns and yet again using history as our model they end up with a lot of money what if we assume that they have a simple growth rate but they only average one percent per year how do they do under that scenario and you can see they do pretty good but their resources are depleted at age 94 beyond life expectancy so there's a lot of different ways you can use the retirement budget calculator to really start to dial in your retirement spending plan okay thanks so much i hope you found this helpful

Channel: Retirement Budget Calculator

Views: 31,163

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Id: Tkt86Xw1Scw

Length: 13min 36sec (816 seconds)

Published: Tue Mar 08 2022