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ASK AN ADVISOR: I AM 60 YEARS OLD, HAVE $1.1M CASH, $880K IN A 401(K), SEVERAL
PENSIONS AND SOCIAL SECURITY. SHOULD I RETIRE NOW?

Updated on February 2, 2023
Written by Brandon Renfro, CFP®

Share

I am 60 years old, married, with no mortgage. We also have $1.1 million in
liquid cash and $880,000 in a 401(k).  I will have two pensions, which have not
started yet, and my wife will have one pension, all three adding up to
approximately $3,500 a month if we took them today. Also, we have paid into
Social Security. At 65 years old, we’ll pull in roughly $5,000 a month combined.
I will have medical and dental insurance through my state government for me and
my wife as long as we live. Not sure if I can retire now or wait a few more
years to build on my pension?

-Fred

The answer to questions like this is always, “It depends.” 

Yes, there is certainly a heavy dose of math involved in arriving at your
answer. But you still need to interpret that math and its conclusions in a way
that you are comfortable with based on your own situation and attitudes toward
money, security and risk. 

I’ll highlight some of the things you should consider as you work through your
decision, but there is no way to give you a concise answer here. I strongly
encourage you to do a significant amount of research if you plan to do this by
yourself or consult a financial advisor. 






YOUR EXPENSES IN RETIREMENT





Incomes and expenses are different for everyone in retirement, so we can’t know
if your income is sufficient without knowing your expenses. Regardless of income
streams (pensions or Social Security) and the savings you have to supplement
them (cash and 401(k)), it’s important to also estimate the amount you’ll need
to spend each month. 

Doing this allows you to compare your income and expenses, just like you do
while you’re still working. 

One way to get a rough draft of your retirement budget is to start with what you
currently spend each month. From there, you can adjust based on any planned or
expected changes once you retire. This might be buying a new car, taking a
celebratory vacation or accounting for changes to your health insurance
premiums. 

The fact that you have paid off your house is a major plus.


SOURCES OF INCOME

Once you’ve estimated your expenses, consider the different sources of income
you have in retirement. Some are guaranteed, while others are subject to risk
through market volatility. Here’s what to look at.


PENSIONS AND SOCIAL SECURITY

I like to look at guaranteed income first. For you, that would be pensions and
Social Security. Rather than dig into the nuance of when you claim your benefit
(although claiming strategies are certainly something to consider), let’s go
with the numbers you mentioned. At 65, you’d have about $8,500 per month coming
in from fixed sources. As a side note, check to see if your pension includes an
annual inflation adjustment. 



Compare that with your expected expenses. How much does it cover? One third?
Half? All? Of course, the ability to cover a larger portion of your expenses
means more security. If you can cover them entirely, you are in a really good
position, although for most people that isn’t necessary.

At this step, you might also divide your expenses into necessities and wants.
Separately think about how much of your necessities might be covered. If you can
cover all of those with fixed sources, great. That could make you less anxious
about needing to cover the remainder with your savings.


SAVINGS WITHDRAWALS

You will need to cover the rest of your expenses by taking money from your
savings. For this, you’ll want to spend some time understanding different
withdrawal methods. That’s because you’ll need to decide on a distribution plan
that allows you to be comfortable taking the withdrawals necessary to pay for
any remaining expenses not covered by your pensions and Social Security. The big
fear for most people is that they will end up running out of money too soon.

A simple way to evaluate this risk would be to look at your planned withdrawal
rate. As an example, let’s say you determine you’ll need to withdraw $40,000 per
year from your savings. 

If we round your savings to $2 million, that’s a 2% withdrawal rate. Most
planners would tell you that is a very conservative withdrawal rate and should
leave you feeling pretty confident. Higher withdrawal rates, 10% for example,
introduce significant risk. But again, you need to be comfortable with whatever
you decide. Base your choice on an understanding of your income needs and the
risk you are willing to take. There isn’t an objective mark to hit. 


YOUR FEELINGS ABOUT RISK





As you consider your choice, consider how you feel about the different risks
you’ll face. The easiest way to see this is through your investments, but they
aren’t the only source of risk in retirement.

Your investments necessitate a tradeoff. The more aggressive your investments
are, the more chance they have to grow and support you throughout retirement.
But that also means they will be more volatile and could cause you concern when
the markets are rough. Very conservative investments might not be as scary to
hold, but the risk is that they may not grow enough to sustain you throughout
retirement.

I notice that you hold roughly half of your savings in cash. Of course, I don’t
know why – you may have recently inherited money or sold property and are still
deciding what to do with it – but this would initially indicate to me that you
are a very conservative investor. 

The cash can serve as a good buffer against market volatility and be especially
helpful during those few years between retirement and when Social Security
starts. This could also be a source of risk too since the real value of cash
will fall over time as inflation withers away at its purchasing power.


WHAT TO DO NEXT

None of what I’ve said here directly answered your question. But that’s because
any answer I could give you would be incomplete and assume too much about you.
There is a lot of nuance to these decisions and they are very personal.

I can’t stress enough how important it is to make sure you understand your
situation, your appetite for the various risks you might face and the options
available to you. Make your decision based on that understanding and choose
something you are comfortable with.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers
reader questions on personal finance and tax topics. Got a question you’d like
answered? Email AskAnAdvisor@smartasset.com and your question may be answered in
a future column.

Please note that Brandon is not a participant in the SmartAdvisor Match
platform, and he has been compensated for this article.


FIND A FINANCIAL ADVISOR

 * If you have questions specific to your investing and retirement situation,
   a financial advisor can help. Finding a financial advisor doesn’t have to be
   hard. SmartAsset’s free tool matches you with up to three vetted financial
   advisors who serve your area, and you can interview your advisor matches at
   no cost 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.
 * Planning for retirement? Use SmartAsset’s Social Security calculator to get
   an idea of what your benefits could look like in retirement.

Photo credit: ©iStock.com/AscentXmedia, ©iStock.com/tdub303

Brandon Renfro, CFP®Brandon is a Certified Financial Planner, Retirement Income
Certified Professional and Enrolled Agent with more than 10 years of experience
as a financial professional. He runs his own independent financial planning firm
called Belonging Wealth Management, where he helps clients plan out their
retirement distributions, minimize taxes, build financial plans and more. He
also holds a PhD in Finance from Hampton University, and spent years as an
Assistant Professor of Finance at both Louisiana College and East Texas Baptist
University. Brandon's areas of expertise include financial planning, retirement
planning, taxes, Social Security, investing, annuities, general personal finance
and more. His quotes have appeared in publications like Forbes, U.S. News and
World Report, Business Insider and more.
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