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I am 54 years old and have been a nurse for 26 years. In our retirement plan, we follow the 80-year rule (your age and length of service = 80). This will cover my health insurance. My pension will be about $7,000 a month after taxes. I have a combined $750,000 in a 403(b) and a Roth IRA. I also have $150,000 in stocks that aren’t doing well, $250,000 in real estate earning $600 a month, and $100,000 in cash. Can I retire now?
– Robin
It looks like you’ve built a solid nest egg between your pension, retirement accounts, and investment assets. Whether you can retire now depends on having enough after-tax income to cover your spending needs and wants, so let’s take a look at what that after-tax income might look like.
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I have to make some assumptions before I can run the numbers and come up with an answer. First, I assumed that the $750,000 in your 403(b) and Roth IRA is split as follows:
$550,000 in your 403(b). All this money is tax free.
$200,000 in your Roth IRA. This account is kept for at least five years.
Second, I assumed that $100,000 of your stock account is contributions, the remaining $50,000 is long-term capital gains, and that your withdrawals from this account are two-thirds and one-third capital gains.
Third, for Social Security purposes, I assumed your salary was $84,000 a year and you would begin collecting benefits at age 62.
Finally, for tax purposes, I assumed you were single and had no dependents. (To learn more about retirement planning, consider contacting a financial advisor.)
A 54-year-old woman is thinking about her future retirement.
With those assumptions, we can use The 4% rule estimate the amount of money you can safely withdraw from each account, excluding your retirement, and run it through TurboTax’s tax calculator to maximize the after-tax income you’ll have for your spending needs.
I’ll start by ignoring your 403(b) since you’re only 54 and withdrawals from that account will likely be subject to a 10% early withdrawal penalty until 59 ½. I will add that account in another section.
But I will include your Roth IRA because you are allowed to withdraw up to the amount you contributed at any time for any reason without penalty. (Note that if you’re under 59 ½ and have held the account for less than five years, you’ll be subject to taxes and a 10% penalty on withdrawals.)
With all that in mind, here’s your estimated annual pre-tax income from each source until age 59 ½:
Pension: $84,000
Roth IRAs: $8,000 (tax free)
Stock account: $6,000 ($2,000 long-term capital gain)
Investment property: $7,200
That’s $105,200 before taxes. When I run these numbers through the tax calculator, I get an estimated $13,138 in taxes due, which gives me an after-tax income of $92,062 per year, or $7,672 per month. (And if you need more help figuring out your income and taxes in retirement, consider talking to a financial advisor.)
At age 59 ½, you can start making penalty-free withdrawals from your 403(b). Using the 4% rule adds another $22,000 before taxes, bringing your total pre-tax income to $127,200.
When I add this to the tax calculator, your estimated tax payable is now $18,196. That gives you an after-tax income of $109,004 per year, or $9,084 per month.
When you turn 62, you can also start collecting Social Security.
I ran your numbers using the Social Security Administration’s quick calculator, assuming you retire at age 54 and make $84,000 a year. Your expected benefit at age 62 is $1,564 per month, which equates to $18,768 per year.
Adding this to our tax calculator gives you a total pre-tax income of $145,968 and an estimated tax payable of $22,024. That leaves an after-tax income of $123,944 per year or $10,329 per month. (Social Security is a critical source of income in retirement, and a financial advisor can help you plan for it.)
One key point is that I don’t know what state you live in, so I haven’t factored in state income taxes. Depending on where you live, your after-tax income could drop by a few percentage points.
With that in mind, if the above after-tax numbers could comfortably cover your needs, you’re probably in good shape. If it’s close, you’ll likely want to dig deeper and perhaps work with a financial planner to get a more personalized answer. And if that after-tax income is less than you need, it’s probably worth working until the numbers are in your favor.
A financial advisor can guide you through the often complex process of retirement planning. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool will match you with up to three vetted financial advisors who serve your area, and you can schedule a free introductory call with your advisor to decide which one 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 announced higher 401(k) and IRA contribution limits for 2024. Savers with 401(k)s will be able to contribute up to $23,000, and those 50 and older will be able to save an additional $7,500. The IRA contribution limit is also set to increase to $7,000 from $6,500. IRA owners age 50 and older can save an additional $1,000.
Have an emergency fund in case of unexpected expenses. An emergency fund should be liquid, in an account that isn’t subject to large fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. However, a high-interest account allows you to earn compound interest. Compare the savings accounts of these banks.
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Matt Becker, CFP®, is SmartAsset’s financial planning columnist and answers readers’ questions on personal finance and tax topics. Got a question you’d like answered? email Email AskAnAdvisor@smartasset.com 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, so he has been compensated for this article.
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