The answer to this question, as always, is it depends.
In order to know whether this person can retire, we will need to know a few more details. For educational purposes, let’s use the following figures:
- Monthly expenditures: $3500
- Interest rate on home: 4%
- Any big expenditures coming up soon: No
- When do you plan to take Social Security: Immediately upon retirement
- What were your earnings in the last year you worked: $60,000
- Do you have any other forms of debt: No
Can this person retire based on this?
First, let’s look at what is going to be coming in.
- Around $1500/month will be generated from the IRA based on the 4% rule.1
- ~$1556 from Social Security
- $300 from the pension
This brings total monthly income to $3356, which is less than the $3500 needed for expenses.
What are the options?
This person has a few things to consider in this scenario:
- Waiting another year to take Social Security. This would increase benefits to ~$1706, bringing total income to $3506.
- Working part time to make up the $144 difference. It doesn’t take many hours to net a couple hundred bucks in a month.
- Simply hang it up and take an additional $144 out of the Roth — that wouldn’t be the end of the world, especially with a good manager.
In summary, there is some flexibility for what someone can do when they are looking to retire. It is important to make a realistic budget for expenses, and then to consider what income will be before making the official decision.
- The 4% rule is an industry standard that says that a retiree should live off of ~4% of savings every year to keep pace with inflation and cover fees. ↩︎
