Is $1million Enough to Retire at 60? - Case Study

‍

"I'm 60 years old, I'm getting fed up with work, and I'm ready to see if I can go ahead and retire.

‍

This is how a conversation started with a prospective client of ours recently. She and her husband had about a million dollars saved between their retirement accounts and bank accounts, and they wanted to see if that was enough for them to retire immediately. So we did what we do with any prospective client at Spark Wealth Advisors – we ran through a full retirement plan to determine if their savings would last the rest of their lives based on their desired lifestyle and spending.
‍

In this blog post, we’ll share the ins and outs of the financial plan we created for this couple, Tom and Camille (names changed for privacy), to help you determine if you can retire as well. Check out the YouTube video below for a more detailed walk-through of our financial planning software.
‍

Introduction to Tom and Camille’s Situation

‍
‍

Tom and Camille's Financial Snapshot:
‍

• Net Worth: $1.6 million, including their paid-off home.
• Investment and Bank Accounts: Around $1 million.
  ‍

Account Breakdown:
‍

• Tom: Roth IRA ($40,000), 401k ($250,000)
• Camille: 403b ($310,000) and Rollover IRA ($100,000)
• Joint Accounts: Checking, savings, and a trust-titled brokerage account.
  ‍

Current Income and Social Security
‍

Current Earnings:
‍

• Tom: $120,000 per year + 15% bonus
• Camille: $150,000 per year + 10% bonus
  ‍

Social Security Estimates at Full Retirement Age (67):
‍

• Tom: $2,700 per month
• Camille: $3,000 per month
  ‍

Initial Retirement Analysis
‍

Using our financial planning software, we ran a Monte Carlo simulation to project 1,000 different scenarios for Tom and Camille's retirement. This initial analysis showed only a 5% probability of their money lasting throughout their retirement if they retired immediately at 60, a clear indication that adjustments were needed.
‍

Adjusting the Plan for Higher Success
‍

Key Adjustments Discussed:
‍

1. Delaying Retirement: Camille was willing to work up to three more years to ensure a more secure retirement.
2. Part-Time Work for Tom: Tom enjoys his work and is willing to do part-time consulting, earning about $60,000 a year for the first five years of retirement.
3. Delaying Social Security: We recommended they delay claiming Social Security until full retirement age to maximize benefits.
4. Adjusting Retirement Spending: Introducing a retirement spending smile, which assumes higher spending in early retirement, decreasing in mid-years, and rising again due to healthcare costs in later years.
   ‍

Benefits of Delaying Social Security
‍

By delaying Social Security until full retirement age (67), Tom and Camille would receive significantly higher benefits. For example, waiting until 67 could result in $442,000 more over their lifetimes compared to claiming at 62.
‍

Improving the Probability of Success
‍

‍

After implementing these adjustments, we saw a significant improvement in their retirement plan:
‍

• Retirement Age Adjusted to 63
• Tom’s Part-Time Income Incorporated
• Social Security Claimed at Full Retirement Age
• Retirement Spending Smile Strategy Applied
  ‍

This improved their probability of success from 5% to 79%.
‍

Detailed Cash Flow and Withdrawal Strategy
‍

Income and Expenses Breakdown:
‍

• Initial Income: Salary and bonuses from current jobs.
• Post-Retirement Income: Tom’s part-time consulting adjusted for inflation.
• Expenses: Estimated at $109,000 annually in retirement, with a tax payment of $14,265.
  ‍

We calculated that they would need approximately $48,000-$56,000 in their first few retirement years, which would be set aside in low-risk investments. This ensured a sustainable withdrawal rate from their portfolio.
‍

Long-Term Sustainability
‍

Expected Portfolio Growth:
‍

• Continued Contributions: Maxing out 401k and 403b contributions for three more years.
• Rate of Return: Assumed at 6.6%, leading to an estimated portfolio value of around $1.6 million by retirement.
  ‍

Withdrawal Rate Analysis
‍

Initial Withdrawal Rate:
‍

• Starts at 2.8%, staying around 3%, and dropping once Social Security kicks in.
  ‍

This low withdrawal rate indicates a sustainable plan, reducing the risk of depleting their funds.
‍

Final Adjustments and Considerations
‍

After further discussions, Tom and Camille decided to budget for $6,500 per month instead of $7,000, increasing their probability of success to 82%.
‍

Future Flexibility:
‍

• Reviewing and adjusting the plan annually to ensure they can increase spending if their investments perform well.
• Considering legacy planning for their children if they accumulate excess funds.
  ‍

Conclusion
‍

While we couldn't make Camille's wish of retiring immediately possible, by compromising and adjusting their plan, we ensured she could retire in the near future with confidence and clarity.
‍

If you're considering retirement and want a personalized financial plan, Spark Wealth Advisors offers a free upfront financial plan to help you make informed decisions. Reach out to get started.
‍

Subscribe to our channel for more insights on retirement planning, leave a comment if you have questions, and share this with friends who might benefit.

By understanding and applying these strategies, you can retire with confidence, ensuring your financial security and peace of mind.

‍