At age 62, an individual with $890,000 in a 401(k) account and $115,000 in a Roth IRA, along with eligibility for Social Security benefits, can likely produce enough income to cover typical retiree lifestyle expenses. The specific amount depends on factors like when Social Security is claimed and how investments are managed.
Social Security benefits are a key income source for most retirees, offering lifelong payments with annual cost-of-living adjustments. The benefit amount is determined by work history and claiming age. For someone currently earning $90,000 annually, estimated annual benefits are $29,508 if claimed at age 62, $41,670 at age 67, and $52,271 at age 70. Delaying claims generally increases the total payout.
Investment income from the combined $1,005,000 in retirement accounts can be generated through different strategies. A conservative approach with a balanced stock and fixed-income allocation might yield a 5% annual return. A more aggressive growth strategy with 70% in stocks and 30% in bonds could theoretically return 10% annually, potentially doubling the portfolio to over $2.1 million in eight years if retirement is delayed.
If retiring immediately, the 4% safe withdrawal guideline suggests taking $40,200 from the nest egg in the first year, adjusted annually for inflation. Combined with $29,508 from Social Security at age 62, this provides $69,708 for initial retirement expenses. If retiring at age 70, the safe withdrawal amount rises to $86,172, and with $52,271 from Social Security, annual income reaches $138,443, reducing risks from inflation or fund depletion.
Retirement expenses are often estimated at 75% of pre-retirement income. For a current income of $90,000, this equates to $67,500 annually, suggesting immediate retirement may be feasible with the projected $69,708 income, though it leaves little cushion for unexpected costs. A more personalized method involves adjusting current expenses for post-retirement changes, such as reduced work-related costs but potentially higher healthcare or travel spending.
Taxes typically decrease in retirement, as Social Security income is partially tax-sheltered and investment income isn't subject to FICA taxes. If facing a higher tax bracket later, converting part of the 401(k) to a Roth account may be considered, involving upfront taxes for tax-free withdrawals later.
Many 62-year-olds with these savings could retire immediately without financial strain, but success depends on individual factors like income history and desired lifestyle. The timing of retirement significantly impacts both Social Security benefits and investment growth, with later retirement generally increasing available funds.