At 63, With $1.6M Net Worth, is Retirement Possible?

Is retiring at 63 a possibility? With a net worth of $1.6 million and $4,500 in monthly expenses, it might seem doable. However, several factors come into play. The income generated from your net worth depends largely on the proportion of liquid assets you possess. Furthermore, your personal risk tolerance plays a significant role in estimating your portfolio's potential returns and the amount you can comfortably withdraw to cover living costs.

Investable Liquid Assets and Withdrawal Strategies

When considering the 4% withdrawal rule, a net worth of $1.6 million would allow for a withdrawal of $64,000 in the first year, adjusting for inflation annually. However, this may not always be feasible due to potential risks such as high inflation, low investment returns, or unforeseen expenses like medical costs. Additionally, the composition of your net worth is crucial. For example, if a significant portion is tied up in illiquid assets like a paid-off residence, the amount available for withdrawal may be limited.

Income Beyond Investments

In addition to investment income, sources such as Social Security benefits, pension benefits, annuity payments, and part-time work can contribute to your overall retirement income. For instance, the average Social Security benefit as of January 2024 is estimated at approximately $1,860. If you qualify for this average benefit, you would only need an additional $2,640 from investments or other sources to cover your $4,500 monthly expense. While this may be achievable with a net worth of $1.6 million, it is important to factor in taxes and other costs that could impact your available income.

Retirement Funding Options

If your investments do not seem sufficient to cover your monthly expenses, several options are available. One option is to delay retirement, allowing your investment portfolio to grow further while reducing the number of years you need to cover your living expenses. For instance, a portfolio of $1.2 million that does not include the value of a $400,000 home could potentially grow to nearly $1.4 million over three more years, assuming a moderate annual growth rate of 5%.

Another option is to delay claiming Social Security benefits until age 70, which can significantly increase your monthly benefits. Additionally, adjusting your asset allocation to increase investment income can lead to higher earnings and allow for larger withdrawals, although this involves taking on greater risk. Seeking the guidance of a financial advisor can help you develop a comprehensive retirement plan tailored to your specific circumstances.