SmartAsset and Yahoo Finance LLC may earn commission or revenue from the links in the content below.
Can you retire at 65 with $750,000 in a Roth IRA and $1,800 in monthly Social Security?
Based on median incomes 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 should be enough for many people to retire on. But there are a number of things to consider to ensure continued comfort in retirement, based on your specific circumstances.
A financial advisor can help you plan your retirement. Find a fiduciary advisor today.
Portfolio Income Plan
Whether a $750,000 Roth IRA and $1,800 in Social Security are enough for you depends on your perspective and expectations for your retirement, says Tim Mauer, chief advisory officer at Signature FD.
Ultimately, it all depends on how you manage your money.
Continuous investment is one of the most overlooked issues in retirement. For example, 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. That might be enough to live on, but as Total Wealth Academy CEO Steve Davis points out, you might not be living particularly well. “Yes, you could retire, but what for?” he said. “Just living paycheck to paycheck. No money for romance, travel, or fun. That’s not what the golden years are for.”
“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’re praying that you’ll die before your money runs out. The effective thing to do would be to invest that money in income-producing assets like real estate. Now you have money for romance, travel and fun. Building a second stream of income is the way to do that, just like Warren Buffett said.”
If you need help creating a retirement income plan or finding new income streams, consider speaking with a financial advisor.
Manage Risk
But investing in income-generating assets can come with additional risk. The more money your portfolio generates, the more you can be exposed to risk and volatility. To manage that, Maurer recommends what he calls a “bucket” approach.
“The conversation might start with how much do you need monthly?” he said. “How much income do you want to set up that is not exposed to market volatility?”
He calls it the “live bucket.” This is the money you put into an annuity or bonds — safe assets that reliably cover your living expenses. For example, say you need $3,000 a month to pay the bills. You put part of your Roth IRA into a lifetime annuity that pays $1,200 a month, so that, combined with Social Security, you have an unlimited minimum income.
Then you can put the rest of your Roth IRA into a “growth” pot. 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 working with a financial advisor.
“That’s money that you can safely put into the market and expose it to volatility, but because you have the live bucket, you don’t have to worry as much.”
Manage your expenses
In addition to growing your money, it is also important to keep an eye on your spending.
Bryan Cannon, author of “Retirement Unplanned: An Expert Guide For Navigating The Crossroads of Retirement With Confidence,” said that retiring with $750,000 and $1,800 in Social Security “depends largely on the individual’s expected retirement expenses and desired lifestyle, which must be carefully budgeted.”
Among other things, he recommends specifically planning for health care costs and possible emergencies or other unexpected expenses. Also, he said, do your best to pay off debt before you retire and reduce your monthly overhead. Basically, eliminate as many bills and obligations 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 also helps insulate you from inflation, because you have the option to spend less as prices rise.
“In general, it is entirely possible to retire successfully at 65 with those assets and income,” Cannon said. “But it does require a well-thought-out financial plan that is tailored to individual circumstances and goals.”
A financial advisor can help you create a budget for your retirement and identify your spending needs.
Conclusion
Retiring with $750,000 in a Roth IRA and $1,800 in monthly Social Security is certainly possible, but that doesn’t mean your work is done. Your retirement lifestyle depends entirely on how you manage this portfolio.
Roth IRA Tips
-
A Roth IRA can be a powerful retirement savings vehicle because it’s funded with net income, allowing your money to grow tax-free. Here’s what you need to know before you open one.
-
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can schedule a free introductory meeting with your advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
-
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
-
Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and provides marketing automation solutions so you can spend more time on conversions. Learn more about SmartAsset AMP.
Photo credits: ©iStock.com/Tinpixels, ©iStock.com/Inside Creative House, ©iStock.com/adamkaz
The post I Have $750,000 in a Roth IRA and Receive $1,800 a Month from Social Security. Can I Retire at 65? appeared first on SmartReads by SmartAsset.
