Can you retire at 65 with $750,000 in a Roth IRA and $1,800 in monthly Social Security?
Based on median incomes and the 10x rule, most people will need about $740,000 to finance a secure retirement. So in theory, a $750,000 Roth IRA and $1,800 in Social Security benefits will be enough for many individuals to retire. But there are many things to consider to ensure sustained comfort throughout retirement based on your specific circumstances.
A financial advisor can help you plan for retirement. Match with a fiduciary advisor today.
Plan for Portfolio Income
Whether a $750,000 Roth IRA and $1,800 in Social Security will be enough for you depends on your perspective and expectations for retirement, said Tim Mauerer, chief advisory officer at Signature FD.
After all, it all depends on how you manage your money.
Continued investment is one of the most commonly overlooked issues in retirement. For example, say you hold this portfolio in cash and withdraw the standard 4% per year. That would give you $30,000 per year for 25 years, or $2,500 per month, plus the $1,800 per month from Social Security. This might be enough to live on, but as CEO of Total Wealth Academy Steve Davis points out, you may not live particularly well. “Yes, you could retire, but to what?” he said. “Just living paycheck to paycheck. No money for romance, travel or fun. That is not what the golden years are supposed to be.”
“The whole problem is the ineffective belief that you can save your way to retirement,” he added. “It doesn’t work. As soon as you retire, you are praying to die before you run out of money. The effective thing would be to invest that money into income-producing assets like real estate. Now you have money for romance, travel and fun. Building a second stream of income is the way to do it, just like Warren Buffett said.”
If you need help building a retirement income plan or identifying new streams of income, consider speaking with a financial advisor.
Manage Risk
But investing in assets that generate income can come with added risk. The more money your portfolio generates, the more you may be exposed to risk and volatility. To manage that, Maurer recommends what he calls a “bucket” approach.
“The conversation might start with the question of, how much do you need on a monthly basis?” he said. “How much income do you want to set up that is not going to be exposed to market volatility?”
That’s what he calls the “live bucket.” This is the money that you place in an annuity or in bonds – safe assets that will reliably cover your costs of living. For example, say that you need $3,000 per month to pay the bills. You put some of your Roth IRA into a lifetime annuity that pays $1,200 per month so that, combined with Social Security, you will have an indefinite minimum income.
Then you might take the rest of your Roth IRA and put it in a “growth” bucket. This money can cover luxuries, inflation and other changing needs. And if you’re interested in the bucket approach or another retirement income strategy, consider matching with a financial advisor.
“That’s the money that you can feel free to put in the market and expose to volatility, but because you have the live bucket you don’t have to worry so much.”
Manage Your Spending
Finally, in addition to growing your money, it’s important to keep an eye on your spending.
Bryan Cannon, author of “Retirement Unplanned: An Expert Guide For Navigating The Crossroads of Retirement With Confidence,” said retiring on $750,000 and $1,800 in Social Security “largely depends on the individual’s anticipated retirement expenses and desired lifestyle, which should be carefully budgeted.”
Among other issues, he recommends planning specifically for healthcare costs and potential emergencies or other unexpected expenses. Do your best, too, he said to pay off any debt before retiring and reducing your monthly overhead. Basically, as much as possible, eliminate bills and commitments.
Doing this will give you more flexibility for growth since you don’t need as much money dedicated to non-discretionary spending. It will also help insulate you from inflation, since you will have the option of spending less as prices rise.
“Overall retiring successfully at 65 with those assets and income is very possible,” Cannon said. “However, it requires a well-thought-out financial plan tailored to individual circumstances and goals.”
A financial advisor can help you build a budget in retirement and assess your spending needs.
Bottom Line
Retiring with $750,000 in a Roth IRA and $1,800 in monthly Social Security is entirely possible, but that doesn’t mean that your work is over. Your lifestyle in retirement will depend entirely on how you manage this portfolio.
Roth IRA Tips
- A Roth IRA can be a powerful retirement savings vehicle, because it’s funded with after-tax dollars, which allows your money to grow tax-free.. Here’s what you should know before you go out and get yourself one.
- A financial advisor can help you build a comprehensive retirement plan. 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 have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/Tinpixels, ©iStock.com/Inside Creative House, ©iStock.com/adamkaz