Can I retire at 60 with $300,000?

By | September 15, 2023

I can retire at 60 with $300,000

I can retire at 60 with $300,000

The short answer to this question is: “Yes, provided you are willing to accept a modest standard of living.” To get a sense of what a 60-year-old individual with a $300,000 nest egg faces, our list of factors to check includes estimates of his or her income, before and after he or she began receiving Social Security, as well as expenses after retirement. Your outlook in this type of situation will vary, but by doing the following calculations and estimates, you’ll have a reasonable idea of ​​what you’ll need to retire at 60 with $300,000. Consider working with a financial advisor as you explore your early retirement prospects.

Income after retirement: Social Security

A good place to start when considering whether you can retire at 60 with $300,000 is to look at your sources of income, including Social Security. The program is inverse means tested, meaning the less money you earned during your working years, the less generous your benefits will be in retirement. Earnings increase up to your maximum Social Security income, after which additional earnings no longer add to your lifetime benefits.

The maximum taxable income changes each year based on inflation. In 2022, it is set at $147,000, meaning that during 2022 you will accumulate the most Social Security credits if you earn up to that amount. If you earn less, you will receive fewer benefits when you retire. If you earn more, that won’t increase your benefits.

Your benefits also change based on when you decide to retire. You will receive the smallest amount of money if you apply at age 62, increasing each waiting month until the maximum benefit payment at age 70. The standard set of benefits is paid at full retirement age, which is set at 66 years and four months for anyone under 65 as of this writing.

Finally, Social Security benefits change each year as the Social Security Administration and Congress adjust this payment for inflation.

For 2022, the average retiree Social Security is $1,657 per month. For the purposes of this article we will assume that a retiree who begins receiving benefits at full retirement age receives the average payment. You can calculate your estimated benefits on the Social Security Administration website.

Income after retirement: investments and savings

The average retirement account generates an average return of about 5% annually. Some estimates place this number higher, but we will use conservative calculations. With a $300,000 retirement account, that means an average return of about $15,000 per year. If you withdraw only these returns, you can generate income from your retirement portfolio without tapping into your principal.

Let’s assume there are no sources of income beyond this $300,000 retirement account and average Social Security benefits. In this situation, your 2022 annual income would be:

  • $15,000 from retirement savings

  • $19,884 from Social Security payments ($1,657 per month)

  • Total: $34,884 ($2,907 per month)

Income before Social Security

The first two, six, or eight years, depending on when you decide to start taking Social Security, will be the most financially challenging.

For example, if you start collecting benefits at age 62 (as early as possible), you will reduce your lifetime benefits to 70% of the total value. In the case of the average Social Security benefit, this means reducing Social Security benefits to $1,160 monthly or $13,919 per year and reducing total annual income (Social Security plus investment income) to $28,918 or $2,410 per month .

In most cases, you will need to wait until age 66 years and four months to collect enough Social Security for a stable pension. If you want to retire early, you’ll need to find a way to replace your income during that six-year period. In most cases, $300,000 is simply not enough to retire early. If you retire at age 60, you will have to live off the $15,000 withdrawal and nothing more. This is close to the poverty line of $12,760 for an individual and translates to a monthly income of approximately $1,250 per month.

Potential pitfalls

I can retire at 60 with $300,000

I can retire at 60 with $300,000

As tempting as it may be to withdraw your retirement account capital, resist the urge. Consider the consequences of not resisting. To match the estimated annual budget of $34,884, you would have to withdraw $19,884 per year from your retirement account principal in addition to withdrawing all of its average returns, so nothing will replace those withdrawals. Over a six-year period, this would reduce your retirement account by $300,000 to $119,304. And as your withdrawals reduce your nest egg balance, that balance would produce less and less income. By the time you start collecting Social Security, there will be relatively little of your original $300,000 left.

Therefore, with a $300,000 retirement account, you will likely have to wait until full retirement age before collecting Social Security benefits. Taking Social Security early reduces your benefits for each month you start before your full retirement age. If you start collecting benefits at age 62 (as early as possible), you will reduce your lifetime benefits to 70% of the total value. In the case of an average Social Security benefit, this means you reduce your Social Security benefits to $1,160 monthly or $13,919 per year and your total income (Social Security plus investment income) down to $28,918 or $2,410 per month.

For most people this is not a practical budget. This is just over 200% of the national poverty line for an individual ($12,760 per year in 2022) and well below the median income. While practical for a short period of time, this budget leaves no room for unexpected or escalating expenses. These could include higher medical expenses with age or inflation. It also eliminates any flexibility needed to adjust to market downturns during retirement.

For most retirees, you should wait until full retirement age if possible.

Pension expenses: taxes

With a good idea of ​​your annual income based on a $300,000 pension, the next question is simple: Will it be enough?

With an annual income of $34,884 and a projected retirement age of 60, we need to anticipate three major issues: taxes, expenses, and pre-Social Security expenses.

You may need to plan for paying income taxes in retirement. This depends on a number of factors, most notably whether you primarily used a 401(k) or IRA (which taxes your withdrawals) or a Roth IRA (which doesn’t tax withdrawals). Social Security benefits may also be taxed, depending on how much you earn.

While it’s not entirely accurate, the best way to estimate whether you’ll have to pay Social Security taxes is to take half your benefits and add them to the rest of your income. For an individual, if this amounts to more than $25,000 per year from all sources, you will likely have to pay taxes.

In our case we will calculate the taxes as follows:

  • Social Security benefits = $19,884

  • $19,884 ÷ 2 = $9,942

  • All other income = $15,000

  • $15,000 + $9,942 = $24,942

When it comes to taxes, a miss is as good as a mile. We are below the $25,000 threshold for individuals, so our Social Security benefits will not be subject to taxes. This leaves us with only $15,000 of potentially taxable income. But individuals avoid taxes on capital gains under $40,400, so there are no taxes on this money either.

Now, it’s important to understand that we have not included potential state taxes in this analysis. And individual circumstances will vary. However, in this case, with $300,000 in retirement savings, average Social Security benefits, and an individual filer, we can expect to pay no federal taxes in 2022.

Pension expenses: annual cost of living

With $300,000 and Social Security, you can expect to collect just under $35,000 per year. On a monthly basis, this equates to approximately $2,900 per month. Is it enough to live on? It depends on numerous variables:

  • Do you pay mortgage or rent?

  • Grocery shop

  • Utility

  • What are your taxes (property, state and federal)?

  • What are your insurance costs (auto, life, medical, long-term care)?

The lists above ignore completely discretionary and luxury expenses such as travel and vacations. Even more critical, the expenses listed above will increase each year due to inflation.

In general, a retirement income of $35,000 is not unrealistic. At the time of this writing, the average individual income in America, according to the St. Louis Fed, is $35,805. In the United States, an income of around $35,000 is acceptable. However, a lot depends on where you choose to live. Bringing a retirement account like this to Kalamazoo, Michigan will be much more practical than trying to live in Chicago.

Reasons for optimism

I can retire at 60 with $300,000

I can retire at 60 with $300,000

When trying to estimate your lifestyle needs, most experts recommend estimating between two-thirds and three-quarters of your pre-retirement income. While you work, you will have expenses that you won’t take with you into retirement. As a result, you will also have more flexibility to move somewhere less expensive. This means you will need less money than during your working life, although lifestyle costs may still increase.

In the case of a retirement income of $34,884, this estimate puts us around an early retirement income of $50,000 per year. If you were making about $50,000 a year before retirement, there’s a good chance that a $300,000 retirement account and Social Security benefits will allow you to continue enjoying your same lifestyle.

Bottom line

By age 55, the average American family has about $120,000 saved for retirement and about $212,500 in net worth. So getting to $300,000 by 60 means you’ll have to be a better saver or investor than the average American. That’s because for most people, early retirement is probably out of the question. But if you’re willing to set a budget and watch, very carefully, your expenses, it’s possible. Just remember that the years between age 60 and when you start receiving Social Security will be the most challenging.

Retirement advice

  • You may learn something about retiring with $300,000, but a financial advisor may have more information than you about planning for this. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, start now.

  • It’s worth getting a good estimate of your financial preparedness for retirement. To get started, use SmartAsset’s free retirement calculator.

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