Back in 1981, I was in high school and remember rocking out to Loverboy’s “Working for the Weekend“. Flash forward a couple or three decades and now I’m working with clients who are “working for retirement,” the ultimate weekend. And folks from all walks of life will ask: Can I afford to retire?
So, no surprise when I was asked by someone who we’ll call Jerry who just turned 59 1/2, “Can I afford to retire at age 60?”
Jerry is married to Susan who is about three years older than him. Between them they have about $300K in a traditional IRA and $1.2 million in 401k’s. Jerry wants to retire soon. Susan does not work. Jerry is concerned about health insurance since he has pre-existing conditions and will need to secure healthcare until he reaches 65 that covers both he and Susan.
What to do? Aside from the question about how he and Susan will now spend their time, theirs is a common query with a number of variations. Can I afford to retire? Will I run out of money? Will I outlast my savings?
Can I Afford to Retire? My Answer:
The answer to this sort of question is rarely simple.
The best way to approach this question is to consider what are your current and prospective cash needs to sustain your retirement lifestyle. Obviously, your health situation will impact the cost and type of insurance you can access. This will certainly impact your cash flow. Before a retirement decision can be made, you should research your options for insurance to carry you through to the date when Medicare will become available.
In this case, the question about cash flow will need to include a detailed cost estimate of insurance and co-payment costs now (age 60) through the age when Jerry and Susan can apply for Medicare (65). And even with Medicare, they’ll need to factor in the cost of carrying their own supplemental insurance for medical and drug coverage.
You’ll also need to understand what the planning time period should be. Will you likely live to the average age that the US Census says or because of your health, lifestyle habits, and family history will it be longer or shorter than that? With the advance of medical technology, the average lifespan for American continues to increase (although other countries have higher life expectancy). I don’t rely exclusively on the US Census data. I prefer to use information from the American Actuarial Association which runs a great website to estimate your life expectancy from four key data points: current age, gender, tobacco use, and self-assessment of health. There are other tools available that go into greater detail about your personal health and family history but this is a good start.
Another factor: housing costs. Where will you live in retirement? Will you sell and downsize? Or will you move to a different state or country? Will you sell and use the net proceeds to supplement your investment or savings portfolio. All of these answers will impact your after-tax cash flow in retirement.
Do you have access to a pension? Or can you sustain living off of your investments while you delay claiming Social Security? If you can defer it for a while instead of claiming at age 62, you’ll have a higher lifetime benefit that may protect you or your spouse from running out of money as well as from inflation.
You might think that having over $1 million may be enough. It really just depends on your lifestyle. It’s not all about how much you have saved. It’s how much you’ll spend. There are many clients I have who live very simply and have enough times two or three.
To get a real handle on this question, you ought to drill down and get into the numbers. This is a question that is best answered with a deep dive Signature Retirement Checkup.
Or at the very least consider a Retirement Reality Checkup.
When you’re ready to tackle this question, reach out to a qualified financial planning professional for help.
