Can I Retire with $1M at Age 60?

Speaker 1 (00:00):

Can you retire with a million dollars at age 60? Well, the answer could be yes, but it ultimately depends on dozens of variables. We have to get the idea out of our heads that retirement planning is all about getting to a certain number in your portfolio. To quote College football coach Mike Gundy, that's not true. We have to get our facts straight. Variables like pension income, social security, and your retirement expenses are going to make all the difference.

Speaker 1 (00:36):

Welcome to the Retirement Power Hour. My name is Joe Allaria and this is episode 31. And yes, we are going to try and help you to see if it's possible for someone to retire with a million dollars at age 60. And if that's you, let me first just say I will not be able to answer that specific question for you because everyone's situation is different. My goal in this video is to simply show you is it possible for someone to retire with a million dollars at age 60? And hopefully by the end you'll see that again, the answer is going to depend on tons of variables that are specific to your situation. So please, this is not personal individual advice, but this just shows you what goes into being able to make these decisions. First before we jump into it, don't forget, you can go to retirement power hour podcast.com to get all of our past shows resources to leave us a review.

Speaker 1 (01:36):

And let me tell you, if you're trying to answer this question for yourself right now, go to retirement power our podcast.com, click work with me. You can schedule an introductory call and we can help you answer this question for yourself. To answer the question, can you retire? Can you do it comfortably? Is it a smart decision to do right now or do you need to work longer? So go to our website, click work with me and we'll help you with that. So again, as I said in the opener, a lot of people think if I get to a certain amount of money in my portfolio that I'm set, that I can retire. Maybe they think it's $1 million, $2 million, $3 million, but the fact is it's just not true. There have been plenty of people that have accumulated 2 million, 3 million, 4 million, some 10 million or more. You've heard of a lot of celebrities that have accumulated all this money and then they run out and they go bankrupt.

Speaker 1 (02:29):

And then on the other side, there's been plenty of people who have accumulated less than a million and have had completely successful retirements. So there are lots of factors that go into this. Do you have pension income? Is that income enough to cover your expenses? Are you married? Do you own property outside of your portfolio? What are your expenses? What is your risk tolerance? What are you invested in? All of these things play a very significant role in determining if you are going to be able to retire. However, one of the biggest factors comes down to your expenses. See, a lot of people will tell you that retirement planning is all about income planning. And while that's true, income planning is only half of retirement planning, the other half is planning your expenses. How much money do you plan to spend in retirement? And sometimes that's the only way to make retirement viable right now.

Speaker 1 (03:23):

So to quote another famous football coach, Nick Saban, it's not only about what you want, it's about what are you willing to do to get it Now for the ideal retirement where you get to travel, enjoy yourself, spend money, you may not want to cut your expenses, but then again, a million dollars might not be enough for you and it might not be enough to make that type of retirement happen. So it comes down to what are your expenses? What do you want them to be? Are you willing to cut them if you need to? And a lot of people I understand they they don't want to do that, which is why retirement planning is so important. And I think the best thing to do is just look at an illustration. So we're gonna show you a sample couple and just understand that when we're looking at this sample couple, we've had to make a lot of assumptions.

Speaker 1 (04:12):

And when you go and do your retirement plan, you might have different variables, different assumptions on your plan. So we need to first understand all the assumptions that we've made. And one is pension income. We're not assuming this couple has any pension income, a lot of people don't. That's one for social security. We're assuming that one spouse is earning $2,500 a month at full retirement age and the other spouse is earning $2,000 a month at full retirement age. Now the average is just under 2000 a month. So that's something to keep in mind. You might have a higher benefit, you might have a lower benefit, but that's what we're assuming on social security. And as far as the social security cost of living adjustments, we're assuming 2.5%, whereas the historical average is 2.7%. So that's also important to know a mortgage. We're assuming this couple has no mortgage.

Speaker 1 (05:05):

That doesn't mean you can't have a mortgage to retire, but we're assuming this couple does not have a mortgage. Your investment return is another variable. We have no clue what future returns will be the order of returns. So for illustrative purposes, we're gonna assume this couple earns 6% on their investments per year. And then maybe the biggest variable, and that is their expenses. We're assuming this couple spends $7,300 a month. That includes property taxes, that includes income taxes, and that includes every single thing they spend money on, health insurance, grocery bills, electric bill, travel, birthday gifts, everything $7,300 a month. And if you look at the Bureau of Labor Statistics, you'll find that for a married couple, $7,300 a month is close to an average on total expenses. I've seen plenty of people be way above this mark, and I've seen some people be below this mark.

Speaker 1 (06:03):

So this cannot be overstated. The level of expenses that you plan for in retirement is probably the biggest factor in determining whether you can retire. If you think about it, if I have zero expenses, anyone can retire at any time. Uh, I'm just gonna live off the land, I have no expenses. Now that's an extreme example. There's probably some level of expense that we all need to cover our our basic needs, but there gets to a point where discretionary expenses vary quite a lot. So I'm gonna pull up an example from our financial planning software and we'll look through this together. Now. This is Mr. John and Jane retiree or hopeful retiree I should say. And this couple again, million dollars in their portfolio hoping to retire both age 60, and they have all the assumptions we just covered. Now let's look at some what if scenarios.

Speaker 1 (06:53):

First of all, before we change anything we just talked about, you can see that these bars representing their portfolio, they retire, they start to go down over time. And then as inflation ticks up, which we didn't talk about, but we do have inflation assumed in this illustration as well, you can't forget about inflation as time goes and inflation is kicking up their portfolio, they're taking withdrawals, portfolio is is going down and down and they end up with just under $30,000 at age 100. Life expectancy is yet another assumption that we don't know. Will you live to a hundred? It's not likely. The average life expectancy is around 85, but again, you can start to see, it's very difficult to answer a question with just a couple of variables. So to do this right, you would need to think about what is my life expectancy, what is my family history?

Speaker 1 (07:44):

And it is possible you could live to 90, 95, a hundred if you have a history of longevity, if you are a healthy person. So that's part of the equation here and we don't know that. So we're just using age 100. Now, using all of the assumptions I talked about, it looks like this couple has a chance. I'd like to see it more margin for error than what I'm seeing, but it looks like their portfolio could last to age 100. Now let's change that important factor expenses. What if they spent a little bit more money than what we initially talked about instead of 7,300? What if they spend 8,300? Well, now that makes a really big difference and it doesn't look like their portfolio would last. It looks like they would run outta money and in this case it's showing at age 77. So we know right off the bat that is not going to work.

Speaker 1 (08:38):

Now, on the other side of the coin, if they're only spending $6,300 a month instead of 73, look how much of a difference that makes. So we're starting to get a range depending on expenses. If you spend $6,300 a month, they'd have $2.2 million. If they live to age 100, if they spend $8,300 a month, they're running outta money at 77. So where your expenses fall is very important. And I know it's not gonna be the same amount of expenses every month. We speak in monthly terms because people tend to get paid in monthly terms and we can wrap our head around that. But it might be that you're spending five grand a month covering all of your bills and even your variable expenses, but then you like to travel $20,000 a year. So what, however it ends up, you just gotta understand what your total expense number is going to be.

Speaker 1 (09:29):

So to my point earlier, if you need to spend less for this to work, are you willing to do that? If you're not willing to do that, now you have to start bringing in other variables like work a little bit longer possibly to make this equation work. What if you aren't willing to spend less, but your financial picture doesn't really allow you to retire right now for those willing to work part-time, semi-retirement could be a hugely impactful strategy. It can allow you to draw less from your portfolio for a few years and add a significant amount to your bottom line over the long term. Also, your reduced hours could give you that taste of retirement that you're looking for right now. And we actually talked about this in episode 30, the episode right before this one. So go to our website and check that out.

Speaker 1 (10:16):

I had a conversation with one of our other certified financial planners about this semi-retirement strategy. And it's a good way, it's a outside of the box strategy. You don't have to retire all at once. You can phase retirement in if you just need a little taste of it right now, you can semi-retire, help yourself financially get you to that point where you can fully retire. Now we've looked at some of these variables here, but what about the things that are outside of your control? Your expenses are in your control, but there are some other things that are totally outside of your control. And rate of return is one of those things. So what if instead of 6% you get 5%, you don't get quite as good of a rate of return as you're expecting? Well, that does make a difference. Now we're seeing money running out at 89 and you might look at that and say, Hey, I'm fine with that.

Speaker 1 (11:06):

I don't think I'm gonna live that long. That's fair. That's a fair response. But just understand that's a variable that's out of your control. Inflation is another variable that we can't control. Historically, you might think, well, it's around 3%, but what if inflation rises just to 3.5%? How does that affect me in the long term? And once again, it's taken our portfolio down to age 89, you know, running out of around that time. So inflation, if that ticks up, if your growth rates go down just a bit, now there's some concern here and that might not make you sleep as well at night. And you might want a little bit more margin of safety if you're thinking about retiring because these things, like I said, are out of your control. Now, if I see inflation going up and I say to myself, if this happens, I'm willing to combine it with something else that can really help me out.

Speaker 1 (11:54):

And maybe that's spending less and that could offset some of this. So if we go back and say, I earned only 5%, it's gonna take my portfolio down, but then if that happens, I'll just cut my expenses. Well, fair enough. But you might not know that you need to cut your expenses at day one of retirement, right? So there's just all these variables, things that happen at different times. You really need to look at this ongoing. This is not a one point in time analysis. It might look good today. You need to continuously check this just like you would do at the doctor. You don't go and get blood work done today at the beginning of retirement. They tell you you're healthy and you never go back. You would never do that. It doesn't, wouldn't make sense to do that. So you need to get checked up on a regular basis to make sure you're still on track.

Speaker 1 (12:39):

So we've seen a couple things that are out of our control, and we've talked about life expectancy, which is obviously one of them. And if you, you find yourself in a situation where your picture's not looking as good, you ask, well, how much benefit could I get from working a few more years maybe using that semi-retirement strategy? We can see there, if we semi-retire, click this button back on, it fills a pretty big gap. Now we're going from 89 to 99. It adds 10 years just by working from 60 to 63 and earning $30,000 a year. It makes a pretty significant difference. We referenced that earlier, and obviously working full-time for two more years is gonna make a bigger difference. You may not wanna do that. So those are some ways to fill that gap. Now what if you're sitting there and saying, well, I have a pension.

Speaker 1 (13:26):

What about that? How does my situation look? Well, that's obviously gonna make huge difference. $3,000 a month pension instead of earning 30, $36,000 for a couple years. Now you get that for your entire retirement. So if you're someone who has a million dollars but a pension and social security, the odds that you can retire are are much higher than for someone that doesn't have any pension income from their job. Now, one of the biggest detractors of retirement is the risk of long-term care. And it is absolutely amazing to me how many people completely disregard the possibility of a long-term care event. They plan for their retirement, like nothing negative or unexpected could ever happen. And that is a tried and true recipe for disaster. Whether you get long-term care insurance or you plan to self-insure by paying out of pocket, every retiree better have a plan for the possibility of a long-term care event.

Speaker 1 (14:26):

And here's what it looks like in this illustration. If John husband needed long-term care, and we just assume that John goes into a long-term care facility at age 80 and is there for three years and is paying in today's dollars $7,000 a month. Now that is around an average, but I can tell you certain facilities today are gonna be much higher than that. But some assisted living home care could be less than that. So there again, we don't know what exact number to use. We don't know how long someone will be in a nursing facility, but we do know the average stay in a nursing facility is under three years. So we can use that as a gauge. And in their case here, Mr. And Mrs. Retiree, hopeful retiree, if they have a long-term care event, it's bad news, it wipes out their portfolio and money runs out essentially a year or two after that long-term care event.

Speaker 1 (15:21):

So this would be someone that they really might wanna look at getting some long-term care insurance because the prospects for self-insuring don't look very good. It doesn't look like they would be able to do that. Now, I always say the biggest risk for long-term care is not if both spouses go in, it's that first spouse because if the first spouse goes in, you still have the other spouse living at home, all the normal expenses plus the expenses of the first spouse who's in the nursing facility. If the first spouse passes away and the second spouse then needs long-term care, well, you could sell your house. Hopefully that is gonna provide a couple hundred thousand dollars at least to help pay for long-term care. And then of course, you've always got Medicaid to fall back on as well. So we've looked at several examples here and several what if scenarios.

Speaker 1 (16:18):

You can tell there are lots of ways that future can play out. So you'll never be able to see and look at every single possible future scenario. But it's important for you to gather a range of possible outcomes. And if you're seeing lots of scenarios where things are happening and your portfolio is running out before you run out of life, then it may not be advisable for you to retire. But once again, I'll ask you a couple of questions. If you're someone who wants to retire, how bad do you want it? How much are you willing to do to make it happen? And when I say that, I mean, are you willing to cut your expenses? Are you willing to adjust your lifestyle? And second, if this is something you are truly, truly considering, I highly recommend that you get a qualified professional to give you a second opinion.

Speaker 1 (17:05):

Rather than doing this on your own, have someone take a look at your situation and advise on whether they think that you can retire. Obviously, we always recommend working with the Certified Financial Planner and someone who even above that is a retirement specialist, someone who is used to doing these types of analyses. And with that, let me remind you, you can go to retirement power hour podcast.com, click work with me, and you can schedule a call with us. We are retirement specialists. We do this type of analysis every day, all day, and we can help answer the question for you, are you ready to retire? Is it advisable for you to retire? Would it be better for you to work a few more years? And unfortunately, if that's the case, we're gonna tell you the truth. We're not just gonna tell you what you want to hear. So with that, I hope this gave you a lot of helpful insight. If you're out there and you're 60 and you have a million dollars, you're close, you're on the right track, you could retire, but it comes down to your specific situation. Once again, we always appreciate your reviews on YouTube, and if you're listening to our podcast on Apple, on Spotify, if you found this content helpful, stay tuned. Come back and see us on our next episode of The Retirement Power Hour, where we help listeners best wiser and retire better. Take care.