Can I retire at 65 with $2 million?

SmartAsset: Is $2 Million Enough to Retire at 65?

Although 65 is a traditional retirement age, getting to that point with $2 million is quite an achievement. With this sum, investment and interest income can be generated, which will support you well in the coming decades. However, saving this amount comes at a cost. And it's crucial to properly allocate it across asset types. It's also important to anticipate the expenses you'll incur during your golden years, such as health care costs and taxes. Find out if $2 million is enough to retire at 65.

A financial advisor can help you put together a financial plan for your retirement goals and needs.

Is $2 million enough to retire at 65?

If you apply the 4% rule to $2 million, you can determine if that's a reasonable amount. The rule means you expect a 4% return on investment and plan to live on that amount. In this scenario, your $2 million nest egg will yield $80,000 in retirement income. So you would be making $80,000 a year without drawing on the capital, meaning that that amount will continue to be generated throughout your retirement. Whether it's enough for retirement depends on your spending.

The Bureau of Labor Statistics reports that the average 65-year-old spends about $52,000 annually in retirement. Of course, your individual circumstances may require a different annual budget. However, if you get anywhere near that average, you can retire on $80,000 a year, especially after factoring in Social Security. Still, it's wise to create a budget to ensure you can afford to retire.

How to determine how much you need for retirement

SmartAsset: Is $2 Million Enough to Retire at 65?

SmartAsset: Is $2 Million Enough to Retire at 65?

Paying $2 million for retirement requires thorough financial planning. When considering your finances, consider the following:

Estimate your expenses in retirement

Your monthly retirement expenses affect your ability to retire on $80,000 a year. Your lifestyle dictates monthly expenses, so it's important to define each and every bill or payment you'll have in retirement.

If you are ready to be matched with local advisors who can help you achieve your financial goals, get started now.

Life expectancy

Life expectancy is another crucial element in retirement planning. For example, if you retire at 60 and live to 90, you have a 30-year pension. Because healthcare spending increases with age, it's a must-have in your budget, and so is Medicare.

Pension experts recommend setting aside 15% of your annual income to cover medical expenses. So you would be setting aside $12,000 a year for healthcare in retirement.

tax planning

In addition, tax planning is a must. Although retirement means retiring from the labor force, in your golden years you pay taxes on most sources of income, such as income. B. Savings accounts, capital gains and social security. Traditional IRAs and 401(k)s, in particular, incur income taxes because they used pre-tax dollars from your years of work. Likewise, if you profit from the sale of stocks, you pay capital gains tax.

On the other hand, you can avoid taxes on retirement income by investing in a Roth IRA or Roth 401(k). These accounts use income on which you have already paid taxes throughout your career. Therefore, it's important to know which account you're saving into and what taxes you'll have to pay when you retire. Remember that even after you've paid off your mortgage, you still have to pay property taxes on your home.

estate planning

With $65 and $2 million, think of your family and wealth to use in the future. Having an estate plan with your family where your home or vacation home is paid off can give loved ones an advantage because these assets can be passed on to generations and not have to take out a new mortgage on another home.

Estate planning can also be helpful for beneficiaries in your 401(k) or an Individual Retirement Account (IRA). Make sure the beneficiaries are up to date and that the added percentages need to be balanced if necessary to accommodate your family's desire.

Identify income streams in retirement

Now that you've got an accurate picture of your spending, it's time to determine your retirement income. A balanced retirement budget includes income from multiple sources:

retirement accounts

Your IRA, 401(k), or 403(b) provides a solid foundation for your retirement planning. Throughout your career, your portfolio will continue to reinvest your money and fuel its own growth as you contribute a portion of your paycheck. So if you plan on growing your account to $1 million, that covers half of your nest egg. You can then diversify the other $1 million into the accounts listed below.

pensions

An annuity is an insurance company contract that provides monthly payments. You earn an annuity by paying regularly or in a lump sum. After you've fully funded your retirement, you'll receive a monthly check when you retire. For example, a $1 million annuity can pay out about $5,000 per month.

life insurance

With full life insurance, the balance earns interest, allowing your beneficiaries a large payout after your death. You can receive policy dividends and pay normal income taxes when you retire. Life insurance policies typically have an interest rate of around 2%, so you won't get enough income from that asset alone.

bank accounts

The recent surge in inflation has pushed up interest rates, making high-yield savings accounts great assets. These accounts have interest rates of 4% and above and require no risk to your nest egg in volatile stocks.

Social Security

Social Security. Your Social Security income is affected by your employment history. According to the Social Security Administration, the average worker who begins receiving benefits at age 65 earns $1,690 per month. However, if you delay Social Security payments, your benefit increases by 8% each year, up to a maximum of 70 years. Therefore, the amount you receive from social security contributions depends on the age at which you start drawing.

bottom line

Retiring at 65 seems like a typical goal, but it takes careful planning and enough nest egg to make it happen. If you accumulate $2 million over the course of your career, you can cash out $80,000 annually without touching your capital, which is a healthy monthly budget. Additionally, your Social Security will likely be between $1,500 and $2,000, giving you more wiggle room. However, each individual's financial situation is unique. For example, if you have a chronic condition that requires expensive treatment, you may need to adjust your spending habits or savings goal. In short, a good retirement means implementing a detailed plan, even if you have a solid investment account.

Tips for retiring at 65 with $2 million

  • Retiring at any age takes hard work and thought, and 65 is no exception. Your $2 million must provide you with a sufficient return to live on, so your investment decisions are paramount. Fortunately, a financial advisor can help you make optimal investments that fit your retirement plans. Finding a qualified financial advisor doesn't have to be a headache. SmartAsset's free tool puts you in touch with up to three financial advisors based in your area, and you can interview the right advisors for free 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.

  • When planning your retirement properly, it's not so much a specific age that matters as it is about being financially secure. The guide below can help you determine if you're ready to retire.

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Is $2 Million Enough to Retire at 65? appeared first on the SmartAsset Blog.

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