Can I retire at age 65 with $2 million?

While 65 is a conventional retirement age, reaching that point with $2 million is quite an achievement. That sum can generate investment and interest income to sustain you well for decades to come. However, saving this amount takes effort. And it’s crucial to properly allocate it across asset types. Also, it’s essential to anticipate the expenses you face during your golden years, such as health expenses and taxes. Here’s how to determine if $2 million is enough to retire at age 65.

A financial advisor can help you come up with a financial plan for your retirement goals and needs.

Is $2 Million Enough to Retire at Age 65?

Applying the 4% rule to $2 million can help you determine whether this is an appropriate figure. The rule means that you expect a 4% return on principal and plan to live on that amount. In this scenario, your $2 million nest egg returns $80,000 in retirement income. Thus, you would receive $80,000 per year without withdrawing the principal, which means that you would continue to generate this amount during retirement. Whether it’s enough for retirement depends on your expenses.

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 dictate a different annual budget. However, if you stay close to that average, you could retire with $80,000 a year, especially considering Social Security. That said, it’s wise to write a budget to make sure you can afford retirement.

How to determine how much you need to retire

Paying $2 million into retirement requires a thorough financial plan. Consider the following aspects when analyzing your finances:

Estimate your retirement costs

Your monthly expenses during retirement influence your ability to retire with $80,000 a year. Your lifestyle determines your monthly expenses, so it’s crucial to define each bill or payment you’ll have in retirement.

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Life expectancy

Life expectancy is another critical element in retirement planning. For example, if you retire at age 60 and live to be 90, you have a 30-year pension. Because health care expenses increase as you age, they are a must-have item in your budget, even with Medicare.

Retirement experts recommend allocating 15% of your annual income to cover medical expenses. Therefore, you would allocate $12,000 a year for health care in retirement.

Tax Planning

In addition, tax planning is essential. While retirement means leaving the workforce, you’ll pay taxes on most income streams in your golden years, like savings accounts, investment income, and Social Security. Specifically, traditional IRAs and 401(k)s will incur income taxes because they used pre-tax dollars from their working years. Likewise, you will pay capital gains taxes if you make a profit from selling stock.

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 you’ve already paid taxes on during your career. As a result, it’s vital to know which account you’re saving in and what types of taxes you’ll be paying in retirement. Remember that you will also pay property taxes on your home even if you pay your mortgage.

Estate Planning

At age 65 with $2 million, you are thinking about your family and your possessions that can be used in the future. An estate plan with your family where your home or vacation home is paid for can put your loved ones at an advantage as these assets can be passed down through generations and they don’t have to start a new mortgage on another home.

Estate planning can also help with beneficiaries in your 401(k) or an Individual Retirement Account (IRA). Make sure the beneficiaries are up to date and the added percentages need to be balanced if necessary to meet your family’s request.

Identify retirement income streams

Once you get an accurate picture of your expenses, it’s time to define your retirement income. A balanced retirement budget will incorporate income from several sources:

retirement accounts

Your IRA, 401(k) or 403(b) is a solid foundation for your retirement fund. During your career, your portfolio will continue to reinvest your money and fuel its own growth as you contribute part of your paycheck. So if you plan to grow your account to $1 million, that’s half of your net worth. Then, you can diversify the other $1 million into the accounts listed below.

annuities

An annuity is a contract with an insurance company that provides monthly distributions. You buy an annuity by paying periodically or in a lump sum. Once you fully fund the annuity, you receive a monthly check during retirement. For example, a $1 million annuity can pay around $5,000 a month.

whole life insurance

A whole life insurance policy has a balance that earns interest and provides a large payout to your beneficiaries after you pass away. You can receive distributions from the policy during retirement and pay normal income taxes. Whole life insurance policies usually have an interest rate of around 2%, so you won’t earn enough income from that asset alone.

Bank accounts

The recent rise in inflation has driven up interest rates, making high-yield savings accounts excellent assets. These accounts have interest rates of 4% or more and don’t involve risking your nest egg on volatile stocks.

Social Security

Social Security. Your Social Security income is affected by your work history. According to the Social Security Administration, the average worker who starts receiving benefits at age 65 receives $1,690 a month. However, delaying Social Security payments increases your benefit by 8% each year, up to a maximum of 70 years. Therefore, the amount you receive from Social Security payments depends on the age at which you start collecting them.

Conclusion

Retiring at age 65 seems like a typical goal, but it takes careful planning and enough nest egg to achieve. If you accumulate $2 million during your career, you can pay yourself $80,000 annually without touching principal, which translates to a healthy monthly budget. Also, your Social Security likely ranges between $1,500 and $2,000, giving you more wiggle room. That said, everyone’s financial circumstances are unique. For example, if you have a chronic health condition that requires expensive care, you may need to adjust your spending habits or savings goal. In short, retiring well means executing a detailed plan even if you have a robust investment account.

Tips for Retiring at 65 with $2 Million

• Retiring at any age takes a lot of work and deliberation, and doing it at age 65 is no exception. Your $2 million should provide adequate returns for you to live on, so your investment choices are key. Fortunately, a financial advisor can help you make ideal investments that fit into your retirement plan. Finding a qualified financial advisor doesn’t have to be a headache. SmartAsset’s free tool matches you with up to three financial advisors that serve your area, and you can interview their 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.

• Timing your retirement correctly is less about a specific age than it is about getting your ducks in line financially. The following guide can help you determine if you are ready to retire.

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