SmartAsset and Yahoo Finance LLC may earn commission or revenue from links in the content below.
I am 54 and have been a nurse for 26 years. In our pension scheme we apply the rule of 80 (your age plus years of service = 80). It will cover my health insurance. My pension is approximately €7,000 per month minus taxes. I have a combined $750,000 in a 403(b) and Roth IRA. I also have $150,000 in stocks that aren’t doing well, $250,000 in real estate that makes $600 a month, and $100,000 in cash. Can I retire now?
–Robin
Between your pension, your retirement accounts, and your investment properties, it looks like you’ve built yourself a strong nest egg. Whether you can retire now depends on whether the after-tax income from those assets is sufficient to meet your spending needs and desires. So let’s take a look at what that after-tax income might look like.
Do you need help keeping track of your pension figures? Consider working with a financial advisor today.
I have to make a few assumptions in order to calculate the numbers and provide an answer. First, I’ve assumed that the $750,000 in your 403(b) and Roth IRA is divided as follows:
$550,000 in your 403(b). All this money is before taxes.
$200,000 in your Roth IRA. This account is kept for a minimum of five years.
Second, I’ve assumed that $100,000 of your stock account comes from contributions, that the remaining $50,000 is long-term capital gains, and that your withdrawals from this account are two-thirds and one-third capital gains.
Third, for Social Security purposes, I have assumed that your salary is $84,000 per year and that you begin receiving your benefits at age 62.
Finally, for tax purposes, I have assumed that you are single and have no dependents. (To learn more about creating a retirement plan, consider contacting a financial advisor.)
A 54-year-old woman is thinking about her future retirement.
With these assumptions in hand, we can do the 4% rule to estimate the amount of money you can safely withdraw from each account, in addition to your retirement, and run it through TurboTax’s tax estimator to calculate the after-tax income you have available for your spending needs.
I’m going to start by ignoring your 403(b), since you’re only 54 and withdrawals from that account will likely incur a 10% early withdrawal penalty before age 59 ½. I’ll add that account in the next section.
However, I will withdraw from your Roth IRA as you can withdraw up to the amount you contributed at any time for any reason without penalty. (Note that if you are under age 59.5 and have owned the account for less than five years, you will owe taxes and a 10% penalty when you withdraw investment earnings.)
Given all this, here is your estimated annual pre-tax income from any source before age 59 ½:
Pension: $84,000
Roth IRA: $8,000 (tax-free)
Stock account: $6,000 ($2,000 in long-term gain)
Investment Property: $7,200
That’s a total pre-tax income of $105,200. Running those numbers through the tax estimator gives me an estimate of $13,138 in taxes owed, leading to an after-tax income of $92,062 per year or $7,672 per month. (And if you need more help estimating your income and taxes in retirement, consider talking to a financial advisor.)
Once you reach age 59 ½, you can make penalty-free withdrawals from your 403(b). Using the 4% rule, that adds another $22,000 in pre-tax income, bringing your total pre-tax income to $127,200.
If I add that to the tax estimator, your estimated tax owed is now $18,196. That gives you an after-tax income of $109,004 per year or $9,084 per month.
Once you reach age 62, you can also begin collecting Social Security benefits.
I ran your numbers through the Social Security Administration’s quick calculator, assuming you retire at age 54 and earn $84,000 per year. Your estimated benefit at age 62 is $1,564 per month, which works out to $18,768 per year.
Adding that to our tax estimator brings your total pre-tax income to $145,968 and your estimated tax liability to $22,024. That gives you an after-tax income of $123,944 per year or $10,329 per month. (Social Security is a crucial source of retirement income, and a financial advisor can help you plan for it.)
An important consideration here is that I don’t know what state you live in and therefore haven’t considered income taxes. Depending on where you live, this could reduce your after-tax income by several percentage points.
That said, if the after-tax figures above can comfortably support your needs, you’re probably in good shape. If it’s close, you’ll probably want to dig deeper and possibly work with a financial planner to get a more personalized answer. And if that after-tax income is less than what you need, it’s probably a good idea to keep working until the numbers work in your favor.
A financial advisor can help you with the often complex retirement planning process. 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.
The IRS has announced higher limits for 401(k) and IRA contributions for 2024. Savers with 401(k)s can contribute up to $23,000, while those who are 50 and older can save an additional $7,500. The contribution limit for IRAs will also increase, from $6,500 to $7,000. IRA owners who are age 50 or older can save an additional $1,000.
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.
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 making conversions. Learn more about SmartAsset AMP.
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.
The post Ask an Advisor: I am a 54-year-old nurse with $1 million in assets and a monthly pension of $7,000. Can I retire now? first appeared on SmartReads by SmartAsset.
