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How to Retire at 65 With $4 Million

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SmartAsset: How to retire at 65 with $4 million

Is $4 million enough to retire at 65? For most people, the answer is yes. But there are a lot of considerations and a good deal of planning to retire, regardless of how much you’ve saved. Everyone has different needs when they retire. Here’s how you can retire at 65 if you have at least $4 million in savings.

If you’d like professional advice on your retirement plan, consider speaking to a certified financial advisor.

How $4 Million Breaks Down

When you plan your retirement, you can use the 4% rule to get a sense of what your income will be like once you leave the workforce. The 4% rule is a simple metric that estimates you can withdraw 4% from your total retirement investments per year. And it’s adjusted for inflation.

This creates a strong probability that your money will last 30 years. This means it would take someone who retires at 65 to the age of 95, significantly beyond the average lifespan.

If you use that very basic rule, you should plan to live on roughly $160,000 a year in retirement if you have $4 million in retirement savings. If that sounds about right or more than enough, fantastic. There are obviously further considerations you should take into account, but you’re in a good place.

And if that doesn’t sound like enough to support your lifestyle, you might have to make some big changes.

That said, the 4% is a very simplistic rule. And some argue that it’s not the best barometer for determining your retirement income. You can take a more in-depth look at your unique financial situation with a retirement calculator or by talking to a financial advisor.

Social Security and Medicare

Your savings won’t be your only source of income if you’re eligible for Social Security. You can start taking your Social Security as early as 62. But you won’t qualify for full payments until you’re 66 or 67, depending on your birth year. The good news is that at 65, you’re eligible for Medicare so you won’t have to pay all your medical expenses out of pocket.

How much you’ll get in Social Security will depend on your lifetime earnings. And at what age you decide to take it.

You can start to draw Social Security checks at any point between ages 62 and 70. But the total amount will be higher the longer you wait. You can get an estimate of what your Social Security checks will look like with the Social Security Administration’s online tool.

Remember to deduct any taxes from your Social Security payments. Income tax will kick in if your combined income is more than $25,000 for a single filer and $32,000 for a joint filer. Your income is calculated as half of your Social Security income plus any other income you have. Additionally, if you continue to work after claiming Social Security but before your full retirement age (66-67), your benefits could be reduced.

Planning for Taxes

Taxes in retirement don’t stop at your Social Security checks. You’ll need to plan for taxes on most forms of retirement income. Here’s how some of the most common retirement investments are taxed, according to FINRA:

  • Pensions: You’ll owe income tax on any pension income in the year you withdraw it.
  • 401(k) plans, 403(b) plans and traditional IRAs: Since these accounts are funded with pre-tax money, you’ll owe income tax on your withdrawals the year you take them.
  • Roth IRAs: Since these accounts are funded with post-tax money, you won’t owe taxes on your withdrawals if they stay within the IRS’s requirements. Since you’ll be past the age of 59 ½, if you’ve had the Roth IRA for at least five years, you won’t owe taxes on withdrawals.

That said, tax rules are complex and shift frequently. Make sure that you’re knowledgeable about the current tax rules in the year you withdraw from your retirement accounts.

Estate Planning

SmartAsset: How to retire at 65 with $4 million

At 65 with $4 million, you might have children, grandchildren or most likely younger relatives close to you. Along with the streams of income that you are looking forward to, consider an estate plan with your family. For example, if you have a home where the mortgage has been paid off, passing it down to your family would reduce the pressure of them having to buy a new home and start with a new mortgage.

Estate planning can also involve creating guardians for living dependents if you currently taking care of children or adults with disabilities. It can also involve updating your beneficiaries within your insurance plan or retirement plan like a 401(k) or an individual retirement account (IRA) if a life-changing event occurred.

Getting Your Dollar’s Worth

If you’re worried that Social Security won’t be enough to cover your annual expenses in retirement, it might be time to make some tough choices. While $4 million is a pretty penny, it won’t go far if you have a big house, multiple cars, lavish travel plans and an expensive lifestyle.

However, there are quite a few ways you can cut your costs in retirement – and you might even prefer the change.

Downsize Your Home

The financial cost and the physical upkeep for a large or expensive property can take a toll as you age. Moving into a smaller place can save you on a month-by-month basis while allowing you to pocket the profit. Moving closer to family or into a retirement community can add additional benefits.

Pay Off Debts

If you have the money, paying off high-cost debts early can save you a lot in interest. First, take a look at your debts. And see if any of them are likely to be a drain on your resources in retirement.

Spend Wisely

Part of retirement is living on a fixed income. So it’s smart to find ways to save on the little things and put that money to more efficient use. Look at small expenses that add up, like subscriptions and your phone plan, to see if there are corners you can cut.

You can also take advantage of senior citizen discounts—ask the places you shop if they have a senior discount. And double-check to see if online retailers have any senior coupons.

Bottom Line

SmartAsset: How to retire at 65 with $4 million

Retiring with $4 million at 65 years old is a lot of money. But if you’re not careful, $ 4 million can go away fast. The key is making sure you continue to maintain multiple income streams in retirement and also creating plans to extend generational wealth to your loved ones for the future. An estate plan can go a long way in keeping your finances and the financial standing of your family in check.

Retirement Finance Tips

  • Even with $4 million, retirement planning can be complicated. Consider finding a qualified financial advisor. 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.
  • If you have a sizable estate, estate taxes on either the state or federal level could be hefty. However, you can easily plan ahead for taxes to maximize your loved ones’ inheritances. For example, you can gift portions of your estate in advance to heirs, or even set up a trust.

Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/kupicoo, ©iStock.com/g-stockstudio

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