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I currently have $680,000 in a 401(k), $150,000 in savings, and a pension of $1,600 per month. Can I retire at the age of 62?
– Hello
This is a good question and the answer depends largely on what your expenses are and how much you will collect from Social Security. What we can do here is run the numbers on a number of different scenarios to give you an idea of how much income you can expect and the level of monthly expenses that your income could support. (And if you have more retirement-related questions, consider talking to a financial advisor.)
Before considering Social Security benefits, let’s first look at what your retirement income might be.
Your pension is clear. That $1,600 per month is a consistent income that provides a strong foundation to meet your needs. On an annual basis, your pension income is € 19,200 per year.
There’s also $830,000 between your 401(k) and your savings. Using the 4% rule, you should be able to withdraw about $33,200 from these sources in your first year of retirement before adjusting subsequent withdrawals for inflation.
Between your retirement and account withdrawals, you start with $52,400 in annual income. Depending on where you live, you probably have about $48,000 per year to spend after taxes are taken out.
That amounts to about $4,000 in monthly expenses you can support before taking Social Security into account. (And if you need help building sources of retirement income or estimating how much you’ll have, consider consulting a financial advisor.)
Of course, Social Security could add significant income to the equation. Using the Social Security Administration’s quick calculator, I ran a few different scenarios to see how they would affect your situation.
First, I assumed you turned 62 on October 1, 2023 and earned $40,000 in your most recent year of employment. In that scenario, this is your estimated annual Social Security income, depending on when you retire:
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Age 62: $11,340 per year
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Age 67: $17,064 per year
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Age 70: $21,816 per year
When you add this to the income from your pension and your savings, you’re looking at a total annual pre-tax income of between €63,740 and €74,216.
I then ran the same scenario, but assumed your employment income was $70,000. Using the same calculator, here’s your estimated Social Security benefit at each retirement age:
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Age 62: $15,744 per year
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Age 67: $24,036 per year
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Age 70: $30,972 per year
In this scenario, we are now looking at a total annual pre-tax income that ranges from $68,144 to $83,372.
To answer your question specifically, your total pre-tax income at age 62 could be between $63,740 and $68,144 per year, depending on whether your earned income is closer to $40,000 or $70,000.
Now that taxes have been deducted, you’re probably looking at an annual retirement income of between $57,000 and $61,000, which means you can cover between $4,750 and $5,083 in monthly expenses. (Consider a match with a financial advisor if you need help with Social Security planning.)
If these Social Security estimates are reasonably close to your actual benefits, and if your monthly expenses at retirement will be $4,750 or less, then it looks like you can retire at age 62.
If your expenses are higher, you may want to consider working a little longer. Doing so will increase your Social Security benefits, increase your retirement savings, and decrease the number of retirement years you have to support. Or you can find ways to reduce your monthly expenses to the point where your current assets, retirement income, and Social Security benefits can cover them.
Of course, I’ve made several assumptions here, and it’s also worth noting that the 4% rule is simply a good rule of thumb. Your actual situation may differ from what I have explained.
However, I hope that when you see how I ran the numbers, you will understand how to do this type of analysis so you can make the best decision for yourself. (And if you need extra help with your retirement plan, this tool can help you find potential advisors.)
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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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Consider a few advisors before choosing one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
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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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Matt Becker, CFP®, is a financial planning columnist at SmartAsset, answering reader questions about personal finance and tax topics. Do you have a question that you would like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Matt is not a participant in the SmartAsset AMP platform, nor an employee of SmartAsset, and has received compensation for this article.
Photo credits: ©iStock.com/ljubaphoto, ©iStock.com/Korrawin
The post Ask an Advisor: I have $680,000 in a 401(k), a monthly pension of $1,600, and another $150,000 in cash. Can I retire at the age of 62? first appeared on SmartReads by SmartAsset.
