Help Me Retire: I’m 55, tired of ‘soul-crushing jobs,’ have $1 million invested poorly — can I retire now?

Hello,

I’ve been working since my senior year in high school and have finally hit the $1 million mark at the age of 55. I probably could have doubled that amount had I chosen to invest wisely. Instead, I banked about 70% of my savings in CDs and other low interest-bearing safe havens. So, now I’ve currently got about $700,000 in CDs earning a paltry 1%. I do however have the other 30% invested in higher-yielding index funds. 

Like so many others, I want to retire and get off the merry-go-round of unfulfilling, soul-crushing jobs. I have never purchased a home. I also don’t have any debt, nor do I have any kids or a spouse. As someone who lives a minimalist lifestyle, I can probably get by on about $3,000 a month. Is there a comfortable path I can take to get there if I leave the workforce today? I’m currently in good health, but there is a history of heart disease in the family, so I’ll be lucky to reach my 80s. 

Ready for a new chapter today!

See: I’m 63, unemployed since March, and have $220,000 in retirement savings — should I claim Social Security early?

Dear reader,

Saving $1 million — no matter what type of accounts that money is in — is such an accomplishment, so congratulations. 

You’re right to say that investing these assets in something other than CDs would possibly have gotten you more money, but there’s still time to make sound financial decisions. Sticking to low-interest accounts may feel comfortable, but you could actually be losing out on money in the future if these accounts do not keep up with inflation. The same can be said for housing — rent prices may fluctuate and rise much faster than your income, said Nadine Burns, president and chief executive officer of A New Path Financial.

Believe it or not, a retirement in the near future is feasible, some financial advisers said. How much money someone needs to accumulate before retiring depends greatly on the individual’s circumstances and numerous factors. If you expect a shorter life expectancy and can live off $3,000 a month, you’d be right under the typical 4% withdrawal rate, said Kristin Sullivan, a financial adviser at Sullivan Financial Planning. “He could likely withdraw more in the early retirement years knowing his withdrawals would drop quite a bit when Social Security kicks in,” she said. 

Your $3,000 estimate would have to include taxes and exclude Social Security projections, though, said Rob Greenman, lead adviser and partner of Vista Capital Partners. “When you factor in Social Security income kicking in 10 to 15 years from now for this person, they should be able to live on that burn rate for 40 years or so,” he said. 

A key component to these calculations is life expectancy. Although you think you will not live well into your 80s, the truth of the matter is you simply don’t know. “There are many people in their 50s that believe they will live a full retirement until 80+ then magically drop dead,” Burns said. Even if you don’t believe you may personally live to be 90 or 100, you should plan as if you will. One of the greatest fears older Americans have is running out of money, and you don’t want your future self to regret not putting enough thought into that possibility. 

Think about a few hurdles you might have to jump if you retire too soon. This includes what kind of health care coverage you will have between now and age 65, when you qualify for Medicare; when you would start claiming Social Security; and the tax and potential penalties associated with withdrawals from your accounts. Qualified retirement plans, like 401(k) plans and individual retirement accounts, have special rules associated with withdrawals before age 59 ½ (though there is a 401(k) rule for people 55 or older who were separated from their jobs).  

Don’t miss: This early retiree found her calling during the COVID-19 pandemic 

Health care can be a major challenge for early retirees, especially with no spouse who could have perhaps claimed you as a dependent on his or her plan. Health insurance can be expensive, especially when not tied to an employer’s plan, and eventually, medical expenses will be a large portion of your monthly costs. “This can be one of a retiree’s biggest expenses and may compromise the reader’s $3,000 monthly budget,” said Brian Behl, founder of Behl Wealth. 

Earlier I mentioned the risks associated with keeping your money in low-interest and safe investments. Before retiring, you should take a hard look at your investment strategies. Another key factor in how long your $1 million lasts is your portfolio’s diversification. 

“An individual cannot retire on $1 million if they plan to keep 70% of their funds in low-interest (no interest nowadays) accounts,” said Thomas Balcom, founder of 1650 Wealth Management, who recommends having 20% to 25% in bond funds or cash positions and the remainder in a diversified portfolio of stock mutual funds, exchange-traded funds and/or market linked notes. “These investments will provide him with the potential to grow his portfolio to account for inflation during his retirement years.” 

You may want to look for a financial planner to help you create a financial plan and allocate your assets appropriately for your age, risk tolerance and goals. 

As for Social Security: choosing to leave the workforce will cut into your benefits later in life, said David Haas, owner of Cereus Financial Advisors. The Social Security Administration factors in your wages over your career, using the highest income years to figure out your benefit — this means you could be losing out on a potentially higher benefit by leaving early too. 

That being said, if you still choose to leave the workforce soon, think about when you would start to claim Social Security. When you do, the amount of money you’ll be taking out of your savings will decrease — prolonging the lifespan of these accounts — but you may want to delay the benefits as long as possible so that you get as much as you can. If you wait until after your Full Retirement Age, which is around age 67, you’ll get more than your Primary Insurance Amount.

Also see: I’m an upper-middle-class ‘loner’ entering the ‘home stretch of my life’ — who will manage my last wishes?

Along with the financial considerations, think about the non-money aspects that make up retirement. I know you said you’re tired of “unfulfilling, soul-crushing jobs,” but switching from work to no clear plan for what to do with your days could be disastrous for your mental and emotional well-being. Not everyone has a clear vision for their retirement, but now would be the time to make a list of some possible paths. This could be volunteer work, or more time with the family, or perhaps the type of job that brings in significantly less money but also makes you happier.  

“My advice is to examine why he wants to retire,” Haas said. “Maybe there is something he always wanted to do that is different from his current job. Instead of retiring, use his nest egg to finance a second career in something he might really want to do.” This would also give you more time to pay into Social Security, add more money to your savings and have health insurance covered. 

Transitions can be hard — whether the retiree is at a traditional age, such as around 65, or earlier, like in their 50s or even 40s. Many people are taking early retirement more seriously — there’s a whole movement for it, called FIRE, short for “financial independence, retire early” — but there are hard lessons that come with this freedom, such as a loss of identity from leaving the workforce or an unbearable amount of free time. 

You have worked hard for nearly four decades, so it makes perfect sense why you’d like to take this next step into retirement. Having $1 million saved is an incredible feat as is having no debt. But while you may want to jump into retirement because of these impressive achievements, make sure you think carefully about this decision and all of the possibilities attached so that you are truly comfortable for the coming decades.  

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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December 27, 2020 at 06:30AM

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