Ask an Advisor: I’m 54, a Nurse With $1 Million and a $7k Pension – MASHAHER

I’m 54 with 26 years of service as a nurse. We go by the rule of 80 (your age plus years of service = 80) on our retirement plan. It will cover my health insurance. My pension will be around $7,000 per month minus taxes. I have a combined $750,000 in a 403(b) and Roth IRA. I also have $150,000 in stocks that aren’t doing well, $250,000 in real estate property earning $600 per month and $100,000 in cash. Can I retire now?

– Robin

Between your pension, your retirement accounts and your investment property, it looks like you’ve built a strong nest egg for yourself. Whether you can retire now depends on whether the after-tax income from those assets is enough to support your spending needs and wants, so let’s break down what that after-tax income might look like.

Do you need help running your numbers for retirement? Consider working with a financial advisor today.

Initial Assumptions

I need to make a few assumptions to run the numbers and provide an answer. First, I have assumed that the $750,000 in your 403(b) and Roth IRA is split as follows:

• $550,000 in your 403(b). All of this money is pre-tax.

• $200,000 in your Roth IRA. This account has been held for at least five years.

Second, I’ve assumed that $100,000 of your stock account is from contributions, that the remaining $50,000 is long-term capital gains, and that your withdrawals from this account are two-thirds basis and one-third capital gains.

Third, for Social Security purposes I have assumed your salary has been $84,000 per year and that you start collecting your benefit at age 62.

Finally, for tax purposes, I’ve assumed that you are single with no dependents. (If you’d like to learn more about building a retirement plan, consider matching with a financial advisor.)

Estimated Income Before 59 ½

With those assumptions in hand, we can use the 4% rule to estimate the amount of money you can safely withdraw from each account, on top of your pension, and run it through TurboTax’s tax estimator to ballpark the after-tax income you’ll have available for your spending needs.

I am going to start by ignoring your 403(b) since you are only 54 and withdrawals from that account would likely be subject to a 10% early withdrawal penalty before age 59 ½. I will add that account in the next section.

I will, however, include your Roth IRA since you are allowed to withdraw up to the amount you’ve contributed at any time and for any reason without penalty. (Keep in mind that if you’re under age 59 ½ and have had the account for less than five years, you would owe taxes and a 10% penalty when withdrawing investment earnings.)

Story continues

Given all of that, here is your estimated annual pre-tax income from each source before age 59 ½:

• Pension: $84,000

• Roth IRA: $8,000 (untaxed)

• Stock account: $6,000 ($2,000 in long-term capital gains)

• Investment property: $7,200

That’s a total pre-tax income of $105,200. When I run those numbers through the tax estimator, I get an estimate of $13,138 in taxes owed, which leads to an after-tax income of $92,062 per year or $7,672 per month. (And if you need more help estimating your income and taxes in retirement, consider speaking with a financial advisor.)

Estimated Income After Age 59 ½

Once you reach age 59 ½, you can start taking penalty-free withdrawals from your 403(b). Using the 4% rule, that adds another $22,000 in pre-tax income, bringing your total pre-tax income to $127,200.

When I add that to the tax estimator, your estimated taxes owed are now $18,196. That gives you an after-tax income of $109,004 per year or $9,084 per month.

Adding Social Security

Once you reach age 62, you can start collecting Social Security as well.

I ran your numbers through the Social Security Administration’s Quick Calculator assuming you retire at age 54 and make $84,000 per year. Your estimated benefit at age 62 is $1,564 per month, which equates to $18,768 per year.

Adding that into our tax estimator brings your total pre-tax income to $145,968 and your estimated tax owed to $22,024. That leaves you with an after-tax income of $123,944 per year or $10,329 per month. (Social Security is a crucial source of retirement income and a financial advisor can help you plan for it.)

So, Can You Retire?

One major consideration here is that I don’t know what state you live in and therefore haven’t factored in state income taxes. Depending on where you live, that might reduce your after-tax income by a few percentage points.

With that said, if the after-tax numbers above could comfortably support your needs, you are probably in good shape. If it’s close, you will likely want to dig deeper and possibly work with a financial planner to get a more personalized answer. And if that after-tax income is less than what you need, it is probably a good idea to keep working until the numbers work in your favor.

Retirement Planning Tips

• A financial advisor can help guide you through the often complex retirement planning process. 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.

• The IRS has announced higher limits for 401(k) and IRA contributions for 2024. Savers with 401(k)s will be able to contribute up to $23,000, while those who are 50 and older will be permitted to save an additional $7,500. The contribution limit for IRAs is also set to increase, rising to $7,000 from 6,500. IRA owners who are 50 and older can save an extra $1,000.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Matt Becker, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email [email protected] and your question may be answered in a future column.

Please note that Matt is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset, and he has been compensated for this article.

Photo credit: ©iStock.com/adamkaz, ©iStock.com/eric1513

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