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We’re 58, have $1.3 million saved and two homes, but ‘I would give myself a grade of B-’ for retirement planning

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Hello,

My wife and I are 58 years old. We have four grown children who are all on their own with good jobs. All of their undergrad college has been paid for. (One daughter has graduate school loans for her advanced degree that she is paying for.) We consider ourselves fortunate and own a house on a lake in Massachusetts along with a condo in Florida. In the early years of our marriage my wife stayed home with the kids. Retirement planning for both of us has been my responsibility. I would give myself a grade of B- with how I have done. We currently have $1.1 million in a 401(k), $150,000 in IRAs, $23,000 in an HSA, and $55,000 in an emergency fund. We each have a $250,000 life insurance policy with a long-term care rider in addition to a $400,000 term policy for me through work.

Our house has about $500,000 worth of equity and our condo is paid off and worth $450,000. We own both cars and our mortgage is our only outstanding loan. We have a balance of $210,000 and expect to pay this off before we are 65. 

I continually worry about when I can retire and running out of money during retirement. When we get together with friends and family, they always ask me when I am going to retire, and ask “you are not retired yet?”

I currently have a salary of about $200,000 and my wife works part time for some spending money. I don’t mind working currently, but at some point I would like to quit corporate life. I think we can live well on about $10,000 per month. 

I don’t feel like I can retire at this point and figure I have another 6 or 7 years before I can. How should I respond to friends and family thinking I should have retired by now?  

Thanks for listening,

Nervous Bill 

See: I’m 53, my wife is 54. Our $1.4 million retirement nest egg is 100% in equities and crypto. What should I do now for retirement?

Dear Nervous Bill, 

First of all, you definitely don’t deserve a B-. You have worked hard your whole life, you and your family are living comfortably and you’ve saved more than $1.3 million. That’s amazing. 

As for your friends and family asking questions, we’ll get to that later on. I’d like to start with some ways you can improve your future retirement security. 

You mention needing $10,000 or so per month. This is likely feasible, but you should look at how you plan to make up that amount every month, which sources you will derive this $10,000 from and if it takes into account all of the expenses you’ll need. Think about absolutely any expense you may have in retirement — not just housing, utilities, groceries and some recreational costs, but healthcare as well. Healthcare is one of the biggest bills Americans have in retirement — a couple retiring at age 65 can expect to spend $300,000 in retirement on healthcare alone, and that does not incorporate long-term care, which is also pretty expensive (think nursing home, renovating the home for aging in place, a health aide and so on). If you were to retire before 65, you’d need to account for health insurance before you become eligible for Medicare.

On top of all of the necessities, this is also a time for you to enjoy yourself, which may mean traveling, dining out or memberships to local sports or art institutions. Take into account inflation of prices for all of these things. 

“A major concern is variable expenses — the cost of a vehicle, cost of travel, the cost of clothing, electronics, food has all gone up massively,” said Dan Sudit, a partner of Crewe Advisors. You aren’t just thinking of the prices of today or five years from now, but also 10 and 20 years down the line, when you’ll still be in retirement. 

I will note that a financial planner can help you figure out what amount of money per month makes sense, as well as calculate inflation and investment returns to show you how your portfolio may be able to sustain your spending in retirement. 

As for your income in retirement, you’ll also have Social Security, as you know. But think long and hard before you start claiming. Taking benefits beginning at Full Retirement Age (also known as FRA) will give you 100% of the benefits you owe, whereas any time before will result in a permanent reduction of your full benefits. If you were to delay claiming from FRA up until age 70, you’d even get more money in your monthly checks. Make a list of all of the sources of income for retirement and start strategizing how you will take your monthly amount, with taxes and investment growth in mind. 

“Creating a distribution plan is very important when it comes to meeting and exceeding your retirement goals,” said Craig Ferrantino, founder and principal of Craig James Financial. 

While you’re still working, maximize your savings as best as you can, Ferrantino said. Reach the maximum contribution limit for a 401(k), which for Americans 50 and older will be $27,000. Do the same for an IRA, which is $7,000 for people 50 and older in 2022. 

“One misconception we see is that people believe they cannot contribute if they are maximizing their contributions to their 401(k), that is simply not true — you may not get the tax deduction but can most certainly still save for your retirement,” Ferrantino said.  

Your wife can also contribute to an IRA. Normally, an individual can only contribute what he has earned (so for example, if a 53-year-old only makes $3,000 this year, he can only contribute up to $3,000 in his IRA even if the contribution limit for a 53-year-old worker is $7,000). Because you earn more than that limit, however, she can contribute up to $7,000 for her own account under spousal IRA rules

Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey 

It’s great you plan to have your mortgage paid off by age 65, but try balancing paying that debt off with saving for retirement. Yes, having the mortgage paid off is one less task to stress about, but you should be focused on maximizing your retirement savings during the last few years of your working years. If your mortgage is at a modest rate, and you have a few payments left into your retirement years, it’s a completely acceptable form of debt to take into retirement with you.

“So long as people have the economic wherewithal, there shouldn’t always be the compulsion to pay off a mortgage so long as it is embedded in your expenses,” Sudit said. It’s a fixed payment every month, so it won’t fluctuate. You wouldn’t want to bring “bad debt” into retirement with you, like credit card debt. 

Now for what to say to your family and friends. I understand this can be emotionally and mentally draining, but to be honest, it’s also none of their business whether you decide to keep working or not. If you’re happy at work, or you’re working because you want to keep saving money while you’re able, then all the power to you. 

“If you have expressed to family and friends you wish you were retired, it is still really none of their business but you can say ‘I will retire when the timing is right for my family and I and our future,’” Ferrantino said.  

And as for that grade you gave yourself… Sudit said you shouldn’t be so hard on yourself. He’d give you an A. 

Readers: Do you have suggestions for D? Add them in the comments below.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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