I love the question …

Can I afford to retire?

Why ask someone else, even an expert? One thing is for sure, if you have to ask that question at all, you are probably a tad behind in your retirement planning – or you need to do more detailed planning.

Then there is the other question …

How much money do I need to retire?

Only you know the answer to that question as well. I admit it’s a bit more tricky than “can I afford to retire?” But the answer is you need sufficient assets to generate annual income in retirement for rest of your life that support your lifestyle.

Two factors only you can determine:

How much do you want to spend in retirement, including money for fun stuff, like travel? And second, after Social Security and possibly a pension or an annuity, what is the gap between that income and what you want to spend?

That gap is what you need assets to fill. The place to start is to use the 4% guideline for withdrawals. In other words, if the income gap is $20,000, you need an investment pool of about $500,000.

Not everyone needs a million dollars as is often mentioned.

6 comments

  1. One of the most helpful things to me is when I realized that what I needed was an monthly income stream not “x” amount of assets. Once I realized that, everything settled down for me. I retired at 60 and don’t regret it. Yes, I have assets available for the emergencies, but you have to have the flow to go (retire).

    What Dwayne wrote in his comment was also very good and appropriate.

    Liked by 1 person

  2. Thing think these are valid questions. On the extremes, I have read about people with greater than $1.5m in savings / IRAs, mid-60s, and no debt wondering whether or not they can retire. I have also heard from people in their 50s with no pension, no savings, paying a mortgage thinking that Social Security is all that they need.

    Of course there is the insecurity of paying for medical and long term care. Listing to the experts it is unaffordable and impossible to pay for most people. Some people have made per year what it cost for 6 months in a nursing home so how do you pay for a nursing home when you are not working?

    I spent 38 years planning and saving for retirement not knowing if I did everything right. I made a few mistakes of my own and outside forces throw a curve ball now and again. The world is against you. When I was about 50, a financial planner looked at my assets and my plan and told me that I would be able to retired as planned. What a relief. I didn’t know if I was going to have to work until I was 65 or 67 or at all. I was hoping to retire at 55 and I did. My whole outlook changed knowing that all I had to do was stay the course. Worrying about retirement was a thing of the past and I was able to start looking forward to retirement.

    Still as I approached 55, I was still learning how my pension, Medicare, and Social Security REALLY works. Until you get close, everything is estimates. How you actually get your money depends on how many coworkers you are still in contact with to tell you. It hard work.

    It was just super nice that someone else was able to valid my assumptions and planning after all that time. Some people just need to hear that. Others need to hear the truth. Some people should be asking instead of trying it on their own.

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    1. How can you conclude that the person can retire with $1.5 million without knowing their current income or expenses. $1.5 million will generate about $60,000 in income. What if they were earning $100,000? Can afford to retire should be more than just covering the basic living bills each month.

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      1. You’re right, of course, but the indicators of having accumulated $1.5M, a paid off mortgage are all evidence of someone who understands finances to certain degree. Just Sayin’

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      2. One can’t conclude if they can retire to whatever their “idea” of retirement is without more information. However, if they have no debt, they are not going to starve and mostly likely will not end up homeless. If they manage to save that much money, I’ll bet that they can manage their money and live within their means. There are others who read your blogs that would tell you that they could live like a king on $60k. They might have to move, but can live like a king.

        On the flip side, someone with debt, a mortgage, no pension or savings and will be depending solely on Social Security then there might be a good chance that they will barely exist in retirement. They have a proven track record of not planning for their future and more than likely poor money manage skills.

        Can someone with $1.5m retire – yes. Will it be the perfect lifestyle? I don’t know. But I do know, someone without any savings, a plan, a pension and has high amount of debt will be lucky to just exist and are only kidding themselves in think that they can retire and have their current lifestyle.

        Sometimes people just need to hear that.

        Liked by 1 person

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