{"id":20984,"date":"2023-06-10T17:38:11","date_gmt":"2023-06-10T21:38:11","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/im-62-and-ready-for-my-golden-years-ive-1-7-million-in-annuities-roths-and-index-funds-can-i-afford-to-never-work-again\/"},"modified":"2023-06-10T17:38:12","modified_gmt":"2023-06-10T21:38:12","slug":"im-62-and-ready-for-my-golden-years-ive-1-7-million-in-annuities-roths-and-index-funds-can-i-afford-to-never-work-again","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=20984","title":{"rendered":"\u2018I\u2019m 62 and ready for my golden years\u2019: I\u2019ve $1.7 million in annuities, Roths and index funds. Can I afford to never work again?"},"content":{"rendered":"
I\u2019m going to preface this by saying that I know I am in a great long-term position. It\u2019s the short term that is of concern.<\/p>\n
\n
I am 62, single with no dependents. I own my smallish home outright and it\u2019s worth $1 million due to the location. I own my car outright and I have no debt. My IRA and small Roth accounts have about $350,000 with an additional $840,000 in two guaranteed-income deferred annuities rolled over from a couple old 401(k)s in 2020. There\u2019s $520,000 in my regular brokerage accounts (mostly Vanguard Index funds).<\/em> I have $42,000 invested in two eReits and $10,000 in Series I Bonds. I have $71,000 in a higher-yield savings account and $12,000 in a checking account.<\/p>\n
I had always planned to retire at 65 and live off my savings until filing for SSI between 67 and 70 (approx $3,400 to $4,100, depending on when I file). A year ago at 61, I abruptly quit a good-paying new job due to a bad work environment, and a week later, my elderly parent had a serious medical issue. I decided to take time off to help navigate care, and just be present \u2014 without all of the stress of a pretty demanding job. A year after quitting, I figured out that I have no desire to go back to what I was doing and, quite frankly, have to desire to work at all!\u00a0<\/p>\n
<\/p>\n
\n
\n \u201c<\/span>\u2018I\u2019m not afraid of running out of money long term. It\u2019s the next 5 to 7 years that are really causing me heartache.\u2019\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n
So here (finally) is my concern. My expenses are at least $3,000 per month give or take. Given what I have in savings and no plans to file for Social Security Insurance for at least five years, what do I continue to live on, especially if I don\u2019t go back to work? I most likely have some house expenses (new roof, garage door, etc.) in the near future, plus, I want to travel sooner than later so $71,000 won\u2019t last that long especially with this inflation. Do I sell off some of my mutual fund shares to boost my savings?\u00a0<\/p>\n
At some point (most likely in the next two years) there may be about $75,000 of inheritance, but I\u2019m not factoring that into the equation for now. I think I\u2019ve done almost everything right, and I\u2019m ready for my golden years. I\u2019m not afraid of running out of money long term. It\u2019s the next five to seven years that are really causing me heartache. What are your thoughts?<\/p>\n
Short-term Angst<\/p>\n
Dear Angst,<\/strong><\/h2>\n
Life is short, but we all hope for a long retirement, and it\u2019s easy to lose sight of what\u2019s important when we are \u201cnose-down\u201d in the rat race. We only have one life, and most of us, if we\u2019re lucky, have two parents and\/or sometimes one good parent. If we are blessed with one or both, it\u2019s a gift if we can afford to take that time with them, especially if they have pressing medical issues. Thankfully, you had planned ahead, and you were able to do just that.<\/p>\n
Many people reevaluated their relationship to work in recent years. You did so because you became a caretaker. The most fortunate among American workers were allowed to work from home from 2020, and where their work was the umbrella that protected their financial life and gave them the funds to live their life, by the end of the pandemic, that umbrella became their life which gave them the ability to work. It\u2019s a profound change.<\/p>\n
I\u2019m going to take a wild guess here \u2014 well, not so wild \u2014 and say that a lot of people are reading your letter with their mouths agape, with not a small amount of envy. Some may see a touch of humble bragging to your financial achievements, but you acknowledge that you are in a healthy financial position, and have endeavored to do everything right. That, I\u2019m sure, involved sacrifices along the way. So bravo to you. From a gratitude point of view, your financial list is a good one.<\/p>\n
There are a couple of wrinkles, which may be useful for others to be aware of. Robert Seltzer, founder of Seltzer Business Management in Los Angeles, said he would not recommend a client to roll their 401(k)s into annuities due to their higher fees and lack of flexibility. Without working, your only taxable income would be derived from retirement account distributions and investment income \u2014 but if your taxable income is less than $41,675, therefore, you would pay no capital gains tax.\u00a0<\/p>\n
Is it a good time to liquidate some stocks? You\u2019ve played the long game. The S&P 500 \n SPX, \n +0.11%<\/bg-quote> \n is up 2.7% over the past year; many people close to retirement have been spooked by stock-market volatility since 2020, but the S&P has increased more than 30% since the last trading session of 2019 \u2014 before the pandemic. Assuming you\u2019ve been investing for the past three decades or more, and have experienced the miracle of compounding over that time, the time to enjoy your life is nigh.\u00a0<\/p>\n
<\/p>\n
\n
\n \u201c<\/span>\u2018Assuming you\u2019ve been investing for the past three decades or more, and have experienced the miracle of compounding over that time, the time to enjoy your life is nigh.\u00a0\u2018\u201d<\/span>\n <\/p>\n
\n \u2014 The Moneyist<\/span> \n <\/small><\/p><\/div>\n<\/p><\/div>\n
Something to consider as you age: \u201cAs you transition from the accumulation stage of life to the distribution stage, it is important to recognize that your risk tolerance is changing,\u201d says Mel Casey, a senior portfolio manager at FBB Capital Partners. \u201cIf the brokerage account index funds are all in stock funds, this should be addressed. A rebalancing over time to reduce stocks and increase bonds may lower the risk and prepare the account for eventual distributions.\u201d<\/p>\n
Meet with a financial adviser and work out your short- and long-term needs: what your income looks like before and after you tap your Social Security benefits. The good news is you have a healthy income awaiting you when you finally start drawing down money from your retirement accounts. It helps enormously that you have paid off your home \u2014 property taxes, insurance, food prices, car payments, gas, health insurance, etc. notwithstanding.<\/p>\n
About that health insurance. No doubt you are already aware that this will be an extra expense before you qualify for Medicare at age 65. The average annual health-insurance premium for 2022 was $7,911 for single coverage, up slightly from $7,739 in the prior year, according to KFF, formerly known as the Kaiser Family Foundation, a nonprofit headquartered in San Francisco, Calif. (You can read more about signing up for Medicare and what it will cost here.)<\/p>\n
Casey also has thoughts on healthcare costs as you get older. \u201cYou have three years until you can apply for Medicare and that will be an important time in terms of choosing the appropriate path,\u201d he says. \u201cIn the meantime, some form of health insurance is advisable, if only to eliminate the \u2018tail risk\u2019 of a serious injury or illness which could erode this healthy savings very quickly.\u201d<\/p>\n
Withdrawing money for retirement<\/h2>\n
You could cover a substantial part of your expenses from your brokerage account and Roths ($870,000) or annuities ($840,000). While you have done a great job in growing long-term assets, there are relatively few liquid, short-term assets (emergency reserves), says Randall Watsek, financial adviser with Raymond James. \u201cFor someone in retirement without earned income to draw on for living expenses, having at least five years of reserves might greatly lower their stress level,\u201d he adds.<\/p>\n
Ideally, you want to take Social Security between 67 and 70. \u201cFrom an average life expectancy basis, it works out roughly the same, whether you take Social Security at 62 or 70,\u201d Watsek says. \u201cYou get more small payments if you take it earlier, or fewer large payments if you take it later. It makes most sense to delay Social Security if you have a family history of living into your 90s or 100s or if you\u2019re still working.\u201d <\/p>\n
But if your parents have a history of living a long life, and you currently have good health, Seltzer said he would be open for more discussion about what age you should start claiming Social Security, and he would explore whether you are comfortable waiting until you reach 67 or 70 years of age. (This would warrant further discussion with your own financial adviser, and you can reevaluate your position every 12 months.)<\/p>\n
As my colleague Alessandra Malito points out, help comes in many forms: financial consultant, wealth manager and investment adviser. Choose a fiduciary who is required to act in your best interests (rather than giving you advice with one eye on your needs and another eye on their commissions). In order to become a certified financial planner or CFP, you must complete a certificate or degree program, 6,000 hours of related experience and have passed an exam.\u00a0<\/p>\n
\u201cBroker-dealers are advisers who primarily sell securities and often charge commissions on their recommendations. Commissions aren\u2019t inherently bad, but clients should understand what they\u2019re being charged for and feel comfortable with those fees before proceeding with the advice,\u201d Malito writes. Certified public accountants, chartered life underwriters, certified employee benefit specialists respectively deal with accounting, life insurance and benefits.<\/p>\n
\u201cThe rule of thumb for taking distributions during retirement is 4%,\u201d Seltzer added. \u201cIf you took a very conservative distribution rate of 3%, it would amount to $52,500 which is almost 50% higher than your expenses of $36,000. So, by living off of a mix of savings, distributions from the annuities and capital gains from your brokerage account, you should meet his cash-flow needs with paying very little tax.\u201d<\/p>\n
You\u2019re doing just fine. Your $75,000 inheritance will also give you some freedom for the next year or two, and help you get over the finish line. If you travel, think about Airbnb-ing \n ABNB, \n +2.04%<\/bg-quote> \n your home, which would cover your accommodation costs. It may also encourage you to try living in a place for a month or more. As a cardiologist might tell a patient when they\u2019re putting them on medication for the first time, \u201cStart low, go slow.\u201d Take your time. Don\u2019t make any big decisions.<\/p>\n
As one member of the Facebook \n META, \n +0.14%<\/bg-quote> \n Moneyist Group said, \u201cIf you\u2019re a man please marry me!\u201d I\u2019ll leave that with you with God\u2019s and your fiduciary\u2019s blessings.<\/p>\n
<\/p>\n<\/p>\n<\/figure><\/div>\n
Readers write to me with all sorts of dilemmas.\u00a0<\/em><\/strong><\/p>\n
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on\u00a0<\/em><\/strong>Twitter.<\/em><\/strong><\/a><\/p>\n