September 29


Can You Retire


A neighborhood kid turned my 11-year-old son, Jesse, on to Rubix cubes. He is watching videos on strategies and buying special accessories to speed up his progress. His best time so far is 47.12 seconds! That is seriously impressive. It is rather cute to walk by his room to see him focusing intensely on his cube, twisting away feverously.

My wife had her birthday last week, and I thought it would be funny if I got those birthday candles that keep lighting back up. She blew them out, and the kids were amazed as they lit back up again. Over and over, they blew them out, but they kept relighting. It was getting pretty hectic and before we knew it the cake was on fire.

Let’s play a game I like to call, “Can They Retire?”

We will look at several scenarios and decide whether or not the individuals involved are financially able to hang up their boots.

Scenario #1

Bob and Paula are both 65 years old. Bob is still working and makes around $65,000 a year working as a dental hygienist, and Paula makes $75,000 as a manager at a small box factory.

They have saved around $1,000,000 in their retirement accounts, and have another $100,000 saved in the bank. They own their home without a mortgage, which is worth around $400,000. They are both in decent health and have longevity in their family.

Right now, between the two of them, they bring home about $80,000 a year after taxes (or $6500 a month). They can save at least $500 a month in the bank. So, can they retire?

Yes. If each takes their Social Security, they will get around $4500/mo total. They can also both go onto Medicare. While $170 will come from each of their Social Security payments for Medicare, they won’t have to worry about paying for health insurance.

Assuming they invest the $1,000,000 in a portfolio of stocks and bonds with at least half of the money in stocks, they can safely withdraw $4,000/mo. This totals $8500/mo in gross income minus $800 in taxes, which gives them $7700/mo of spendable income.

Considering they are taking home $6500 now with a little to spare, we know they can pay their bills and not take much of a lifestyle hit. They also have a nice emergency fund in the bank.

Social Security will grow at the pace of inflation, and spending naturally decreases somewhat dramatically between 65 and 80 (40% by government estimates). This means they don’t need to worry about long-term expenses.

Scenario #2

Joe and Joanne, ages 62, are both still working, making about $150,000 in combined income. They bring home about $7500 a month after taxes. They have a small mortgage on their $500,000 house, which will be gone in five years.

Their retirement accounts total around $700,000, and they have $50,000 in the bank.

Joe’s Social Security at 62 is $2200, and Joanne’s is $1800.

They want to retire early. Their jobs are killing them. They want to “finally enjoy our lives.”

Can they retire? Nope.

By taking their Social Security early, they get 35% less than if they took it at their “full retirement age” at 67. They can’t go on Medicare until they are 65, so they have to worry about health insurance, which could cost upwards of $1000 a month.

With their savings, they can safely take a $3,000/mo check from the IRA. That’s $7000 a month total minus taxes which equals $6400 ($1100 less than their monthly income now). Not only would their lifestyle be radically altered, they would be in serious trouble from a long-term perspective. If they live until 90, that is almost 30 years of living off their savings. They have worked for forty years, for goodness sake. It is just not realistic to be retired almost as many years as you worked.

The fact that their mortgage will be paid off in five years is another good reason for them to wait.

Scenario #3

Ron and Rita, age 65. Mechanic and nursery school teacher.
Ron SS= $2000
Rita SS= $2400

$500,000 in retirement accounts, $100,000 in the bank.

No mortgage.

Take-home pay is $5200 a month. They have learned to live below their means. They are very careful with their money.

Can they retire?

Yes. Easily. Because their budget is around $3000 a month, they have a ton of options. Including the $2000 a month they can take from their retirement accounts, along with their Social Security, they will have more than they need. In fact, it is more than their take-home pay now!

I cannot emphasize this enough. If you want to retire earlier, you need to really trim down your budget. This means no upgrades to the house, very little traveling, cooking most of your own meals, and keeping an eye on all purchases.

I’ve found that someone without debt can get by on $3000 a month if they are careful. It may be a simple life, but we already live in paradise.

Working-class clients often can retire earlier because they have learned to live on small salaries. They have built up the habits necessary to live on their retirement income. At the same time, I work with many professionals, making well into the six figures. They are used to doing what they want, when they want. They have even gotten to the point where they don’t pay attention all that much to the price of things.

That is a recipe for disaster. It is almost impossible to reproduce a $300,000 salary in retirement without millions saved up.

Scenario #4

Joanne, age 67, has $200,000 in retirement accounts, $20,000 in the bank, and no mortgage on a small home. Social Security is $2800 a month. Working as an executive assistant, she brings home $2600 a month.

Can she retire?

Actually, yes, she can. She has waited long enough to build up her Social Security. She is used to living very humbly. She can withdraw $800/mo from her retirement savings without much trouble. She has to pay almost no taxes because her income is so low. She will be living on more money once retired.

I can think of a million more scenarios, but that is enough for today. Let’s review the main points.

You probably can’t retire at 62.
Social Security increases by 8% per year if you wait.
Medicare kicks in at 65.
You will need more than $500,000 to get you through thirty years.
Max out your 401k! ($30,000 per year)
Keep your money working in stocks and bonds, with at least half in stocks.
Budget, by far, is the biggest determining factor for your retirement date.

Be Blessed,


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