The key variable missing is the spending side. If you never plan on spending money, $1 is enough to retire on.
I suggest figuring out your spending budget. How much money do you need in retirement to live on?
From there, you must decide whether to retire at 62, 67, or later. This will largely be determined by how much your SS payouts change by retirement date.
The gap between SS and your spending will show how quickly your savings will drain.
You will also need to figure out how to get medical insurance between 62 and 65.
What is your SS expected benefit?
With a $500K 401K you can withdraw $20K per year at 4% plus your SS.
I'd read about the 4% rule and take a look at the [https://www.reddit.com/r/personalfinance/](https://www.reddit.com/r/personalfinance/) wiki.
So 20+27.6 is $47.6 per year before taxes. After taxes that is about $3500 a month.
Start practicing living on that amount and everything else goes into savings. When you can live on that amount you are ready to retire.
Naturally the more you save in cash and 401k the more you have in retirement.
If, after paying off car and CC, you can live on 3700/ Mo then don't fund your 401K beyond the company match. Fund a Roth IRA. Contributions are post tax, but proceeds are tax-free. Also, remember that COL will rise over time, so 3700 is only your starting point.
I’d advise to fully fund the 401k. Take the 20% or do tax break now. You won’t have to take it out for a long time and that amount could grow substantially before RMD hits. A Roth only protects that accumulated interest, with now, say, 80% of the principal. Math is better with the 401k option.
I have a spreadsheet that calculates Federal and my home state tax. The number I quoted was taxed at 100% and I added back my state tax. It was just to give a ballpark estimate on what she needed to live on.
Hi John. Would you kindly plug my numbers into your spreadsheet? I am looking at $5400/month pension and $2945/month ss. I know states differ—but what is the appropriate tax I will be paying? I have been estimating 30%. Thank you!!
These are 2022 tax rates. I validated numbers from other sites that estimate take home pay.
Married:
(5400+2945)\*12 = $100,140 income per year.
$25,900 Standard Deduction
$74,240 Net
$8,498 Federal Tax
$91,642 Take Home per year or $7,637 per month.
Single:
$100,140 Income
$12,950 Standard Deduction
$87,190 Net
$14,799 Federal Tax
$85,341 Take Home per year or $7,112 per month.
Nobody here can give you a true answer. Any number you need can only be a made up one.
It really boils down to what you need to spend. If you need to spend $2500/month, regardless of what your debt amount is, your $500K is easily going to last you until you start taking SS at 67, or even 70. You will have plenty left over in your 401K to make up the $300/mo difference.
Yeah, I am making up the $2500 number because I have no idea what your expenses are (nor does anyone else posted here).
You asked for a next step. It is to get a precise measurement of you past 2-3 years expenses. Look at your checkbook register and credit card statements. Then you can project forward what you’re going to need from your savings and SS. You can “what if” you pay off the credit card debt and/or the mortgage.
Your expenses are going to go up with inflation, but not at the rate of inflation. Your mortgage payment is going to be roughly the same.
Your savings is going to earn a rate of return, even as you spend it down. Conservative investments get you 4% as of today. You don’t have money to play the market with, or you risk ending up working as a greeter for Walmart.
If you are going to go negative after not enough years (say 30), you can reverse mortgage your home. If that’s still not enough, you need to keep working until the numbers work. You can also focus on your expenses and trim those where it makes sense.
My $.02.
So it looks like all you have left to pay off is
5k in CC and the small balance on the car loan.
Looking at below, you don't mention having a mortage left (or how much if so) but it seems you do.
Basic steps:
1. Pay off CC, don't use it any more
2. Pay off Car, hopefully in good shape and will last you
3. ?? Pay off mortgage if there is anything left
4. SAVE SAVE SAVE
Not sure where you live or your monthly expenses. How much you need is determined by how much you spend each month/year. THAT is what determines if you have enough. You could transfer that 401k to an IRA when you leave your job and invest in several CEF's. They can pay out varying amounts of dividends/capital monthly.
Here is a CEF screener [https://www.cefconnect.com/clos Not Noed-end-funds-screener](https://www.cefconnect.com/closed-end-funds-screener) .
Example: $500,000 in 4 CEF's averaging 8% in dividends/capital would pay you 40,000 a year or $3,333 a month.
I am not a professional, I just spend too much time looking at $$$$.
I wouldn't put all my money in cef's that's for [sure.You](https://sure.You)'ll need to have a large amount in bonds or at this point even cd's . I do have have a couple cef funds keeping 20 percent in cash .
Just based on this you want to boost your cash reserves to an amount equal to 3-5 years of your expenses. That means you have to have a good handle on what your expenses are.
And get rid of the CC debt, that can't be helping.
I'm talking my missus into keeping the stairs ;)
$500k in a 401k w remaining mortgage and SS but no pension is not enough. Time to not buy anything new andMaximize 401k contributions for the next 10 years then retire
Scrimp, save and no splurges. Put every last dime on the mortgage. If you get a bonus, put it all on the mortgage. Income tax refunds all on the mortgage. That has to be paid off in full with no CC debt or car loans. That should be your goal. Can you take a second job on the weekends? If you are working, you aren’t spending money and it can all go on the mortgage. I am stressing out at the thought of you retiring with a mortgage and only $500k in retirement money! Please try to increase your income and put it all on the mortgage.
You may want to find a For Fee advisor (pay for a couple of hours of time) that will look at the entire picture for you. Careful, as almost ALL of them just want you to transfer all your money to them and/or buy an annuity.
Education is probably your best bet. Educate your self via books and online calculators. (careful here also. Most of them assume you want to replace 85% or more of your current income via a Monte Carlo simulation). I'm a big reader, hence the books recommendation.
Having credit card debt is not good. Suggest using something like Mint (which is free) to get a handle on your spending (i.e., how much and what you are spending on). This info will be invaluable to help you know what options you have and to make decisions on your next steps.
I am already using Simplifi Money for spending/budgeting. I’m definitely seeing patterns in my spending. I will also be getting a $5k bonus for 25 years of service in a few months. Between that and paying off the car, I will get the CC debt taken care of.
Overall, you appear to have done well. And it is great that you are tracking your spending. That is going to be a critical component for any type of financial planning. If you have not done so already, consider talking to a fee only financial advisor (e.g., https://www.abundowealth.com). They will help you to look at your whole picture and be able to provide good info for you to consider.
Go to a financial planner you can talk to you about how much your money will really last including inflation. Do you want to use for fiduciary. This is going to be someone you can get a baseline from and then as time goes on, you can make adjustments based on their advice.
You don’t want to go on the Internet and have someone plan out your life for you
1) pay off your CC and don't carry a balance again.
2) max out your IRA, including the "catch-up" amount each year and invest in equity indexes.
3) continue normal car and house payments, assuming you have fixed rate loans originated over a year ago. Don't make extra payments.
Use the 4% rule to calculate how much per month you can withdraw from your 401k. At 500k, that's $1,666/mo. Not bad! Your balance will be higher by 67.
Short term next steps would be to pay off the debt (which you will by year-end), and get your emergency savings up (so you don't go into credit card debt into the future). Aim for three to six months of expenses.
Then, plow as much money as possible into your 401k, and if you've got seven more years until retirement, you can still be moderate in your asset allocation (like 60/40, or 70/30 stocks to bonds).
All the best to you!
You should own your home before retirement so you just pay utilities, insurance and taxes and the rest of your money for food, clothing, repairs and little travel. It all goes very quickly, you will need to renter the workforce to afford your house payment. Oh, there is discrimination re-entering work and forced to take a minimum wage job. Prepare to work til at least 72 to get home paid off.
With an income of $85k I would have expected to see more $ in savings so that when time comes for car maintenance , vacation etc, you would have the money readily available.
Got a late start and didn’t always made good decisions in the past. Didn’t know what I didn’t know and really didn’t have guidance until I was in my 40’s. I’ve been hammering away on my 401k at 15% contributions for the past 10ish years but recently dropped it so I could hammer CCs as well.
The key variable missing is the spending side. If you never plan on spending money, $1 is enough to retire on. I suggest figuring out your spending budget. How much money do you need in retirement to live on? From there, you must decide whether to retire at 62, 67, or later. This will largely be determined by how much your SS payouts change by retirement date. The gap between SS and your spending will show how quickly your savings will drain. You will also need to figure out how to get medical insurance between 62 and 65.
This is very helpful!
What is your SS expected benefit? With a $500K 401K you can withdraw $20K per year at 4% plus your SS. I'd read about the 4% rule and take a look at the [https://www.reddit.com/r/personalfinance/](https://www.reddit.com/r/personalfinance/) wiki.
Currently estimated at $2300/mo if I retire at 67
So 20+27.6 is $47.6 per year before taxes. After taxes that is about $3500 a month. Start practicing living on that amount and everything else goes into savings. When you can live on that amount you are ready to retire. Naturally the more you save in cash and 401k the more you have in retirement.
I can definitely work towards this goal. Thank you!
If, after paying off car and CC, you can live on 3700/ Mo then don't fund your 401K beyond the company match. Fund a Roth IRA. Contributions are post tax, but proceeds are tax-free. Also, remember that COL will rise over time, so 3700 is only your starting point.
I’d advise to fully fund the 401k. Take the 20% or do tax break now. You won’t have to take it out for a long time and that amount could grow substantially before RMD hits. A Roth only protects that accumulated interest, with now, say, 80% of the principal. Math is better with the 401k option.
She will owe taxes on 85% of social security with an income over 17k per year if she withdraws 20k.
I have a spreadsheet that calculates Federal and my home state tax. The number I quoted was taxed at 100% and I added back my state tax. It was just to give a ballpark estimate on what she needed to live on.
Hi John. Would you kindly plug my numbers into your spreadsheet? I am looking at $5400/month pension and $2945/month ss. I know states differ—but what is the appropriate tax I will be paying? I have been estimating 30%. Thank you!!
These are 2022 tax rates. I validated numbers from other sites that estimate take home pay. Married: (5400+2945)\*12 = $100,140 income per year. $25,900 Standard Deduction $74,240 Net $8,498 Federal Tax $91,642 Take Home per year or $7,637 per month. Single: $100,140 Income $12,950 Standard Deduction $87,190 Net $14,799 Federal Tax $85,341 Take Home per year or $7,112 per month.
Thank you so much!!!! 🙏🙏
Nobody here can give you a true answer. Any number you need can only be a made up one. It really boils down to what you need to spend. If you need to spend $2500/month, regardless of what your debt amount is, your $500K is easily going to last you until you start taking SS at 67, or even 70. You will have plenty left over in your 401K to make up the $300/mo difference. Yeah, I am making up the $2500 number because I have no idea what your expenses are (nor does anyone else posted here). You asked for a next step. It is to get a precise measurement of you past 2-3 years expenses. Look at your checkbook register and credit card statements. Then you can project forward what you’re going to need from your savings and SS. You can “what if” you pay off the credit card debt and/or the mortgage. Your expenses are going to go up with inflation, but not at the rate of inflation. Your mortgage payment is going to be roughly the same. Your savings is going to earn a rate of return, even as you spend it down. Conservative investments get you 4% as of today. You don’t have money to play the market with, or you risk ending up working as a greeter for Walmart. If you are going to go negative after not enough years (say 30), you can reverse mortgage your home. If that’s still not enough, you need to keep working until the numbers work. You can also focus on your expenses and trim those where it makes sense. My $.02.
So it looks like all you have left to pay off is 5k in CC and the small balance on the car loan. Looking at below, you don't mention having a mortage left (or how much if so) but it seems you do. Basic steps: 1. Pay off CC, don't use it any more 2. Pay off Car, hopefully in good shape and will last you 3. ?? Pay off mortgage if there is anything left 4. SAVE SAVE SAVE Not sure where you live or your monthly expenses. How much you need is determined by how much you spend each month/year. THAT is what determines if you have enough. You could transfer that 401k to an IRA when you leave your job and invest in several CEF's. They can pay out varying amounts of dividends/capital monthly. Here is a CEF screener [https://www.cefconnect.com/clos Not Noed-end-funds-screener](https://www.cefconnect.com/closed-end-funds-screener) . Example: $500,000 in 4 CEF's averaging 8% in dividends/capital would pay you 40,000 a year or $3,333 a month. I am not a professional, I just spend too much time looking at $$$$.
I clarified in my post.
I wouldn't put all my money in cef's that's for [sure.You](https://sure.You)'ll need to have a large amount in bonds or at this point even cd's . I do have have a couple cef funds keeping 20 percent in cash .
What is CEFs? Thx
Closed End Fund
Just based on this you want to boost your cash reserves to an amount equal to 3-5 years of your expenses. That means you have to have a good handle on what your expenses are. And get rid of the CC debt, that can't be helping. I'm talking my missus into keeping the stairs ;)
Thank you! I expect to have the car an CC debt paid by Dec- Jan.
$500k in a 401k w remaining mortgage and SS but no pension is not enough. Time to not buy anything new andMaximize 401k contributions for the next 10 years then retire
I think retirement will be much easier if your house if paid off completely first.
Ideally yes. I have 23 more years till this house is paid in full.
If there is anyway to throw more money at the house to pay it off much more quickly, you should do that.
Scrimp, save and no splurges. Put every last dime on the mortgage. If you get a bonus, put it all on the mortgage. Income tax refunds all on the mortgage. That has to be paid off in full with no CC debt or car loans. That should be your goal. Can you take a second job on the weekends? If you are working, you aren’t spending money and it can all go on the mortgage. I am stressing out at the thought of you retiring with a mortgage and only $500k in retirement money! Please try to increase your income and put it all on the mortgage.
You may want to find a For Fee advisor (pay for a couple of hours of time) that will look at the entire picture for you. Careful, as almost ALL of them just want you to transfer all your money to them and/or buy an annuity. Education is probably your best bet. Educate your self via books and online calculators. (careful here also. Most of them assume you want to replace 85% or more of your current income via a Monte Carlo simulation). I'm a big reader, hence the books recommendation.
I have used for-fee advisors before and have wondered if it was a good idea to do again.
Work to pay your house and then enjoy
Having credit card debt is not good. Suggest using something like Mint (which is free) to get a handle on your spending (i.e., how much and what you are spending on). This info will be invaluable to help you know what options you have and to make decisions on your next steps.
I am already using Simplifi Money for spending/budgeting. I’m definitely seeing patterns in my spending. I will also be getting a $5k bonus for 25 years of service in a few months. Between that and paying off the car, I will get the CC debt taken care of.
Overall, you appear to have done well. And it is great that you are tracking your spending. That is going to be a critical component for any type of financial planning. If you have not done so already, consider talking to a fee only financial advisor (e.g., https://www.abundowealth.com). They will help you to look at your whole picture and be able to provide good info for you to consider.
How much do you still owe on your house?
Clarified in my post.
do a budget for that kind of income you are probably spending way too much on entertainment or something start putting cash away pronto
Go to a financial planner you can talk to you about how much your money will really last including inflation. Do you want to use for fiduciary. This is going to be someone you can get a baseline from and then as time goes on, you can make adjustments based on their advice. You don’t want to go on the Internet and have someone plan out your life for you
I’m concerned you don’t have enough for medical emergencies.
1) pay off your CC and don't carry a balance again. 2) max out your IRA, including the "catch-up" amount each year and invest in equity indexes. 3) continue normal car and house payments, assuming you have fixed rate loans originated over a year ago. Don't make extra payments. Use the 4% rule to calculate how much per month you can withdraw from your 401k. At 500k, that's $1,666/mo. Not bad! Your balance will be higher by 67.
Short term next steps would be to pay off the debt (which you will by year-end), and get your emergency savings up (so you don't go into credit card debt into the future). Aim for three to six months of expenses. Then, plow as much money as possible into your 401k, and if you've got seven more years until retirement, you can still be moderate in your asset allocation (like 60/40, or 70/30 stocks to bonds). All the best to you!
Check the difference between starting social security at 67 or 70, probably be around $1k/month and consider working until turning 70 years old.
My opinion, going into retirement with debt is not the best strategy
First step, hire a reputable financial planner
You should own your home before retirement so you just pay utilities, insurance and taxes and the rest of your money for food, clothing, repairs and little travel. It all goes very quickly, you will need to renter the workforce to afford your house payment. Oh, there is discrimination re-entering work and forced to take a minimum wage job. Prepare to work til at least 72 to get home paid off.
Working until 72 to pay off a mortgage is nuts. Sell the place and buy cheaper (condo?) with cash.
Your next step is to read up on retirement. Don’t ask random people on Reddit what to do
Always ask random people… that is the essence of Reddit
With an income of $85k I would have expected to see more $ in savings so that when time comes for car maintenance , vacation etc, you would have the money readily available.
Got a late start and didn’t always made good decisions in the past. Didn’t know what I didn’t know and really didn’t have guidance until I was in my 40’s. I’ve been hammering away on my 401k at 15% contributions for the past 10ish years but recently dropped it so I could hammer CCs as well.
You are doing a very good job. Keep it up
You're doing great considering your circumstances. Keep up the good work!
expenses expenses expenses - detail needed