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Can you retire at age 65 with $750,000 in a Roth IRA and $1,800 in monthly Social Security?
Based on average income and the 10x rule, most people need about $740,000 to fund a secure retirement. So in theory, a $750,000 Roth IRA and $1,800 in Social Security benefits will be enough for many people to retire. But there are many things to consider to ensure long-term comfort during your retirement, depending on your specific circumstances.
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Whether a $750,000 Roth IRA and $1,800 in Social Security will be enough for you depends on your perspective and expectations for retirement, says Tim Mauer, principal advisor at Signature FD.
After all, it all depends on how you manage your money.
Continuing to invest is one of the most overlooked issues in retirement. Suppose you hold this portfolio in cash and withdraw the standard 4% per year. That would give you $30,000 per year for 25 years, or $2,500 per month, plus the $1,800 per month from Social Security. This may be enough to live on, but as CEO of Total Wealth Academy Steve Davis points out, you may not be living particularly well. “Yes, you could retire, but for what?” he said. “Just living paycheck to paycheck. No money for romance, travel or fun. That’s not what the golden years should be.”
“The whole problem is the ineffective belief that you can save your way to retirement,” he added. “It doesn’t work. Once you retire, you pray to die before your money runs out. The effective thing would be to invest that money in income-producing assets such as real estate. Now you have money for romance, travel and fun. Building a second income stream is the way to do that, just like Warren Buffett said.”
If you need help creating a retirement income plan or identifying new income streams, consider speaking to a financial advisor.
But investing in income-generating assets can carry additional risk. The more money your portfolio generates, the more exposed you are to risk and volatility. To achieve this, Maurer recommends a so-called ‘bucket’ approach.
“The conversation could start with the question: how much do you need monthly?” he said. “How much income do you want to generate that won’t be exposed to market volatility?”
That’s what he calls the ‘living bucket’. This is the money you put into an annuity or bonds: safe assets that will reliably cover your living expenses. For example, suppose you need $3,000 a month to pay the bills. You put a portion of your Roth IRA into a lifetime annuity that pays $1,200 per month so that, combined with Social Security, you have an indefinite minimum income.
Then you could take the rest of your Roth IRA and put it in a “growth” bucket. This money can cover luxuries, inflation and other changing needs. And if you’re interested in the bucket approach or another retirement income strategy, consider consulting a financial advisor.
“That’s the money you can safely put into the market and expose to volatility, but because you have the ‘live bucket’ you don’t have to worry so much.”
Finally, in addition to growing your money, it’s important to keep an eye on your expenses.
Bryan Cannon, author of “Retirement Unplanned: An Expert Guide For Navigating The Crossroads of Retirement With Confidence,” says that retirement with a $750,000 benefit and $1,800 in Social Security “depends largely on the individual’s expected retirement expenses and desired lifestyle, that must be carefully budgeted. ”
He recommends, among other things, that healthcare costs and possible emergencies or other unexpected expenses be specifically taken into account. Also do your best, he said, to pay off any debt before you retire and to reduce your monthly overhead costs. In short, eliminate bills and obligations as much as possible.
Doing this gives you more flexibility for growth because you don’t have to spend as much money on non-discretionary expenses. It will also help protect you against inflation because you have the option to spend less when prices rise.
“In general, it is very possible to retire successfully at age 65,” Cannon said. “However, it requires a well-thought-out financial plan, tailored to individual circumstances and objectives.”
A financial advisor can help you build a budget for retirement and assess your spending needs.
Retiring with $750,000 in a Roth IRA and $1,800 in monthly Social Security is entirely possible, but that doesn’t mean your job is over. Your post-retirement lifestyle will depend entirely on how you manage this portfolio.
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A Roth IRA can be a powerful retirement savings vehicle because it is funded with after-tax dollars, allowing your money to grow tax-free. Here’s what you need to know before you go out and buy one.
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A financial advisor can help you draw up a comprehensive retirement plan. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can have a free introductory meeting with your advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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