Can I retire at 62 with $1.2 million in investments?

Today, Alex & Anthony dig into a couple’s financial plan to see if they can retire. Stay Tuned…

Retire at 62

Resources:

• An Alternative to Budgeting 
• How much money do you need to retire? 

Full transcript:

SPEAKERS

Alex Okugawa & Anthony Saffer

Alex Okugawa 0:00
Can I retire at 62 with 1.2 million in investments? Today we’re digging into a couple’s financial plan to see if they can retire. Stay tuned.

Hey there, it’s Alex and Anthony from one degree advisors. If you’re new here we are certified financial planners that help folks with all things tax investment and retirement related. Anthony, today we are looking at a case study. So this will be a lot of fun. We’re going to help people answer this question of can this couple of retire at 62 with $1.2 million.

Anthony Saffer 0:35
Yeah, that’s right. And as we dig into this, there are a lot of moving parts, we don’t want people to take this as advice, it’s just to get a picture of this particular family situation. So they have 1.2 million, as you can see here, through their 401 K, their IRAs, their Roth IRAs, they also have $61,000 in cash in the bank as a as a reserve, in addition to that they have a home with a small mortgage, about three years left that they’re paying on that. They’re planning on having social security at 62, it would come out to about $46,000, of course, if they waited, and this will become important to consider is that it’ll be much higher at their full retirement age. In addition to that, when we ask them, Well, how much are you spending besides your mortgage, and besides taxes, they said about $6,000 a month, of course, we have our own way of tracking their current standard of living. And we calculated about $7,500 per month.

Alex Okugawa 1:32
And we do find this a lot. And this is no fault to you know, folks that try and calculate their expenses. But it’s just natural. Usually we underestimate the amount that we are that we believe that we spend. And so that’s why we built a proprietary way of calculating out what we think you’re spending more often than not, it’s very accurate. But that’s where we want to have that conversation with folks who say, here’s what you think you’re spending, here’s what we think you’re spending… Now let’s consolidate or reconcile the two. So we make sure we have an optimal financial plan for you.

Anthony Saffer 2:01
That’s right. And at least it gets the conversation going here. So what we’re going to look at what you’re seeing here is basically a chart that shows each year of their life, with how much is it that kind of their retirement nest egg like what they have in investments. And we can see here as we get towards the the end, and we project this out to age 95 for each of them, because we want to be conservative with that is that this actually drops off at age 84.

Alex Okugawa 2:28
Now, I think it’s important to remind folks as well, in the planning software that we use, each one of those blue bars represents one year of their life. And that blue bar represents like the value of their portfolio. So even though the portfolio draws down, they’ll still have things like social security income coming in, they still have their home, in this case, they own their home. So they still have the the value in the equity in their home that they could potentially turn to. So just want to make that clear, each bar represents one year of your life. And the size of the bar is basically your liquid investment portfolio that you can turn to to create income.

Anthony Saffer 3:01
That’s right. And so one of the first things we wanted to bring up with them is that if they retire at 62, there’s going to be this gap before they take Medicare. So they’d have about $1,000 of health insurance premiums, and Medicare starts at 65, and five, so between 62 and 65, they’d have that gap where they’d have an increase of expenses. So that brings things down a little bit further. So what we basically talked about is what age does make sense if it’s not 62. And in this case, so we’re going to take, we’re going to look at age 65. Here, as let’s see what that looks like. And that’ll give them the opportunity to defer Social Security, closer to their full retirement age at 67. And that you can see gets them much closer to their goal. And so now we can talk about how can we further make up that that deficit there. Of course, if they are working, then each of them can continue to contribute to their 401 K. And that’s going to help a lot because they get three extra years to basically make those Max contributions, they’re able to do it from their their cash flow. And we can see here that not only does it get them to age 95, but it gives us a little bit of cushion.

Alex Okugawa 4:08
Now, I know some folks, they might look at a projection like this. And they see that that bar at age 95. And it looks pretty big right to a lot of people. And I know a lot of people go well, I don’t want to end my life with all this money. I want to spend it and enjoy it. And to them, I’d say Well, that’s a fair point. But we also want to make sure that we have a margin of safety in the financial plan. So when things happen, like, you know, market turmoil that we’re seeing so far this year, when inflation is a lot hotter than a lot of people expected. We don’t have to freak out and worry because there is a margin of safety built into the plan. So things don’t go exactly as you plan. Which hint they’re probably not. We have that margin of safety to make sure that you’re going to be okay. You’re not going to run out of money. You don’t have to go back to work because that’s what a lot of people fear, right. So that’s our job is to make sure we don’t have those things happen, and that we can get you through a six is full and happy retirement,

Anthony Saffer 5:01
And there are a lot of moving parts here. In fact, we and it’s why a financial planning process is really a process that needs to be something that’s ongoing and looked at. In terms of what we’re putting into the projections, we’re assuming a few things. One is that there’s about a 6% annual rate of return on their investments. It’s an estimate, we’re including inflation, we’re including taxes. But I want to bring up one more thing, what if they’re really set on retiring at 62? So we go back to this original scenario here, and we put the health insurance premiums back on. But let’s add in that they’re only living on the 6000 that they mentioned what they can live on, because sometimes there is that, like, hey, I really just want to stop working, I can live on a little bit less. And in that case, you can see it gets them pretty close. It doesn’t give them that huge cushion. But it’s within the ballpark. And at least we could have that conversation to say what does living on a little bit less really look like?

Alex Okugawa 5:58
But this is exactly why planning is so powerful and so important, right? Because what we don’t want to do is put people in a box and say, you know, here’s your thick printed financial plan now go implement it your life and get better and better not change, because now the book isn’t right. Like you said, planning is a dynamic process that we always need to adapt and change, life changes. And we’re going to adapt based upon what people want, and we’re just going to show them the truth. Here’s what the truth is. Let’s take this truth and let’s adapt to it the best possible way we can to make sure you can have that successful outcome that you’re looking for.

And now let us know what you think. What are you doing to prepare for a successful retirement? Have you hired a financial advisor? Are you doing it on your own? Leave your thoughts in the comments down below if you’re interested to know how we help clients prepare and get through a successful retirement, you can visit our website at one degree advisors.com click and click that Get Started button schedule a quick 15 minute call. We’d love to talk with you and share our unique process to get people to and through a successful retirement. Thanks for watching.

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