Exploring Retirement Feasibility with $2.5 Million and $40,000 in Social Security Benefits
Reaching the age of 67, you and your spouse have accumulated $2.5 million in savings and currently receive $40,000 in annual Social Security benefits. The question at hand: Can this financial foundation sustain a $100,000 per year retirement lifestyle? This multifaceted inquiry involves factors such as your planned retirement age, income generation strategies, and overall retirement readiness. In this article, we dissect these elements to provide a comprehensive perspective.
Retirement Timing and Spousal Coordination
If both you and your spouse are contemplating simultaneous retirement, there are essential considerations regarding the timing of your decision. Notably, the availability of healthcare benefits plays a vital role in this context.
Nathaniel Donohue, CFP® and partner at Consilio Wealth Advisors, advises, “If one spouse intends to retire before the age of 65, it may be advantageous for the other spouse to continue working, primarily for health insurance coverage. Early retirees often face the prospect of expensive private healthcare plans.”
However, if you are already 67, you likely qualify for Medicare, potentially reducing the significance of employer-sponsored healthcare.
When planning to retire concurrently, the strategic commencement of Social Security benefits warrants attention. Bryan Kuderna, CFP® and founder of the Kuderna Financial Team, suggests, “Assuming both spouses are in good health, it’s typically wise for the higher-earning spouse to delay their Social Security claims, ideally until the age of 70. Furthermore, the years following retirement with lower income may present opportunities for Roth IRA conversions.”
For personalized guidance on optimizing your Social Security strategy, consulting a financial advisor is recommended.
Generating the Desired Income
The next crucial aspect is the means to generate $100,000 in retirement income.
Bryan Cannon, author of “Retirement Unplanned: An Expert Guide For Navigating The Crossroads of Retirement With Confidence,” affirms, “Retiring at 67 with $2.5 million in savings and $40,000 in Social Security benefits establishes a robust financial base. To achieve an annual income of $100,000, it is advisable to adopt a conservative withdrawal rate (around 4%), diversify your investment portfolio, and maintain diligent monthly budgeting.”
In this scenario, your investment portfolio primarily needs to generate $60,000 per year, as Social Security contributes $40,000 annually. To illustrate, if you were to keep your entire portfolio in cash, you could afford an annual withdrawal of approximately $83,000 over 30 years.
Alternatively, allocating your entire portfolio to Aaa corporate bonds, yielding between 4% and 5%, would yield $100,000 to $125,000 in annual interest income.
For those open to investing in the S&P 500, which historically averages around 10% annually, an average annual portfolio income of approximately $250,000 is feasible. Nevertheless, it’s essential to acknowledge the volatility and inherent risks associated with stock investments.
Considering an annuity as an option, it could transform your $2.5 million into a series of lifelong guaranteed payments.
While these are illustrative examples, diversified investments tailored to your financial objectives are advisable. Few retirees place their entire $2.5 million into a single annuity or bond. Additionally, most will not opt for a 100% stock portfolio due to the associated volatility and risk.
With prudent financial management and the inclusion of Social Security benefits, achieving an annual retirement income exceeding $150,000 is plausible with a $2.5 million nest egg. Consulting a financial advisor can assist in crafting a retirement income plan aligned with your specific requirements.