After a recent job loss, I’m unfulfilled in my new role and considering retiring in January 2025 at age 55. My wife, 56, works part-time and we’ll switch to her health insurance next summer until she retires in two to three years. Until then, we’ll stay on my COBRA until May 2025. I’m struggling to determine whether we have enough saved. We also have hopes of buying an RV to travel the country, going on two to three cruises per year and scuba diving in retirement.
In total, we have almost $4.6 million in combined assets, including $519,000 in savings and around $1.85 in taxable joint investments. Our home is also worth $950,000 but we owe approximately $70,000 on the mortgage. Our estimated expenses in retirement are projected to be $130,000 per year.
I personally have $120,000 in traditional IRAs, $134,000 in Roth IRAs and around $1.72 in multiple 401(k)s. My wife has $51,000 in a traditional IRA and $205,000 in a 403(b). She’ll also receive a monthly pension of $433 starting at age 62.
It seems like we might have enough saved but it’s difficult to determine if I can afford to retire at 55.
-Unfulfilled in My Career
In short, yes – you should be able to retire at the beginning of next year at 55. You and your wife have evidently done an excellent job saving and investing which, combined with realistic future living expenses and minimal debt, should position you well for an early retirement. While there are, of course, scenarios in which early retirement is less feasible, I view these as low-probability outcomes.
If you need help planning for retirement, including when to take Social Security or how to structure your withdrawals, speak with a financial advisor.
Planning for the Long Term
When building a financial plan, it’s helpful to use conservative assumptions, especially when you lack some critical pieces of information. Health of the individuals in question is a great example. Without knowing the health status of either you or your wife, let’s be conservative and assume you will live until you are 93, leaving you 38 years in retirement.
Over this time, your expected $130,000 of starting living expenses will inflate to more than $320,000 by the time you reach your mid-90s. This assumes a relatively aggressive 3% inflation rate, which exceeds the long-term average rate of 2%. Assuming an achievable 6.3% average annual return on your investments, your gains should more than keep pace with inflation over the remainder of your lifetime.
In this base-case scenario, you might even be able to spend more money than you expected. However, given the number of assumptions that go into scenario analyses, it would be best to discuss budgeting with a professional advisor – especially if you intend on pursuing big-ticket purchases like the RV you mentioned. (And if you need help finding a financial advisor, this free tool can match you with up to three fiduciaries who serve your area.)
Structuring Retirement Withdrawals
In preparation for retirement, you both should seek to contribute as much to your respective retirement plans as possible. While I understand your wife is only working part time, if she can max out her 403(b) contributions, that would be optimal. You can then cover living expenses with your joint investment account.
Effectively, this would allow her to funnel more income into the tax-advantaged 403(b). We’ll discuss this more in the next section, but if she has a Roth option in her plan, then that would be an attractive place for contributions so that all future growth is tax-free.
Once you reach retirement, you should consider taking withdrawals from your taxable accounts first to avoid the withdrawal penalties associated with tapping retirement accounts before age 59 ½. While you correctly note that your employer’s early retirement age is 55, and withdrawals from this account will not be subject to the 10% penalty, you should consider letting these assets continue growing tax-free until you need to tap into them.
Assuming you reach age 59 ½ before depleting your taxable accounts, you would next draw from your tax-deferred accounts, such as your traditional IRAs and employer plans. Save withdrawals from your Roth accounts for last since all growth and distributions are tax-free. (But if you need more guidance on how to structure your withdrawals in retirement, consider working with a financial advisor.)
Additional Planning Items to Evaluate
If you were to go through a full financial plan construction process with an advisor, here are some additional considerations you would evaluate:
Health Insurance
While personal motivations and financial ability should of course drive your decision to retire early, please also consider the workplace benefits you will be leaving on the table – especially health insurance. How do you plan to cover healthcare expenses for the six or seven years after your wife retires and before Medicare starts? Will it be funded out of retirement income or included as an additional living expense, like travel? This has implications for your anticipated annual expenses in retirement, and by extension, your probability of covering these expenses with savings and earnings on your investments.
Life and Long-Term Care Insurance
If you do not already have life insurance in place, you should consider policies for you and your wife. This would provide some estate tax protection for any heirs if relevant to your plan. Perhaps more importantly, your current age is the ideal time to look into long-term care insurance. Unplanned long-term care expenses can derail an otherwise sound financial plan and quickly deplete savings you have worked so hard to build. The annual dollar cost of a policy might seem daunting, but as a percentage of your assets it should be small assuming you and your wife are both in good health. And the benefit it provides in terms of protecting your retirement savings cannot be understated.
Asset Location
It seems like you might already be doing this to a degree, but if possible, you should seek to own growth-oriented investments in your Roth accounts and fixed-income assets in your other tax-advantaged accounts. Owning growth assets like stocks in your Roth accounts will allow those investments to compound over time without owing taxes on that growth upon withdrawal. Owning fixed-income investments in tax-deferred accounts like traditional IRAs will help to avoid annual taxes on interest earnings.
Estate Planning and Charitable Giving
In the base case scenario above, the annual growth of your investments is forecasted to exceed the annual growth of your expenses in retirement. This means you could have additional funds available each year for gifting to family members or earmarking for charitable purposes. Thinking through your estate planning and charitable giving goals will bring additional clarity to your “all-in” annual budget. These initiatives can also help to generate tax savings.
On the estate planning front, please be aware that current lifetime gift and estate tax exemption sunsets on Dec. 31, 2025, after which the lifetime exemption is expected to be cut significantly from current levels (from $13.61 million in 2024 to approximately half of that in 2026). While lifetime gifts of this scale might seem ambitious today, if your assets grow beyond the post-2025 exemption – a possibility given your age and lifestyle – then estate taxes could meaningfully eat into what is left if you intend to gift to heirs. Also, depending on what state you live in, you could owe additional estate taxes.
(Estate planning can be complicated, but a financial advisor with estate planning expertise can help you navigate this process.)
Bottom Line
Due to strong saving and investing habits, as well as prudent debt management, you have set yourself up favorably for a well-deserved early retirement. Nonetheless, you could further fortify your position in retirement by evaluating some key pieces of your financial plan that go beyond which retirement accounts you have in place and how much money you have in each.
In particular, consider how you will cover health care expenses before Medicare begins. Long-term care insurance should also come into focus to preserve the money you have worked so diligently to save for retirement. Additionally, think about which accounts hold each asset so that they can maximize their long-term value with the least tax friction. Lastly, but not of least importance, evaluate what you could do with any excess savings you accumulate in retirement. You may consider spending it, gifting it to loved ones or pursuing charitable endeavors.
Tips for Finding a Financial Advisor
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Not all financial advisors are alike. While some focus on comprehensive financial planning for retirement, others strictly offer investment advice and portfolio management. Some wealth managers offer a full suite of services, including financial planning, asset management, tax planning, estate planning and family office services. It’s important to evaluate your own needs and find an advisor who’s services align with them.
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Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Loraine Montanye, CFP®, AIF®, is a SmartAsset financial planning columnist and answers reader questions on personal finance topics. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column.
Loraine is a senior retirement plan advisor at DBR & CO. She is not a participant in the SmartAsset AMP platform nor is she an employee of SmartAsset. She has been compensated for this article. Additional resources from the author can be found at dbroot.com.
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