Imagine Jim, who is 59, sitting on about $850,000 in a 401(k) and hoping to retire at 60. His wife plans to keep working until she\u2019s 65.<\/p>\n
Jim is wondering exactly how realistic his plan is. Retiring at 60 with a respectable nest egg might sound like a clean break from the workforce. But for many Americans, it can be a tricky balancing act.<\/p>\n
On paper, Jim\u2019s plan looks doable. In reality, he needs to factor in taxes, market swings and the pressure of everyday expenses.<\/p>\n
A guideline from Fidelity Investments suggests retirees can withdraw about 4% of their savings each year, adjusted for inflation, without running out of money for about three decades (1).<\/p>\n
In Jim\u2019s case, that\u2019s about $34,000 in the first year.<\/p>\n
Expenses can add up quickly. According to the Bureau of Labor Statistics, the average American household spends more than $6,500 per month (2). Even with a tighter budget, $34,000 a year isn\u2019t likely to stretch far enough on its own, especially before Social Security begins.<\/p>\n
Some advisors argue for a more cautious withdrawal rate, closer to 3.5%, especially for someone retiring at 60 (3). The tradeoff is to spend less now so you can reduce the risk of running short later.<\/p>\n
One thing that\u2019s working in Jim\u2019s favor is a spouse who plans to keep working. That income can ease pressure on the portfolio in the early years. It can also provide access to employer-sponsored health insurance, which is easy to overlook but expensive to replace. Data from the Kaiser Family Foundation shows premiums for older adults without workplace coverage can run into hundreds of dollars each month or more (4).<\/p>\n
Read More: This $1B private real estate fund is now accessible to non-millionaires. Start investing with just $10<\/a><\/p>\n Retiring at 60 can open a short-lived tax opportunity, but it\u2019s not necessarily simple.<\/p>\n With temporarily lower income, some retirees consider converting money from a traditional 401(k) into a Roth IRA, paying taxes now in exchange for tax-free withdrawals later. But there\u2019s a catch. The Internal Revenue Service treats every dollar you convert as taxable income. If you\u2019re also drawing from your retirement savings to cover expenses, those conversions can add up quickly and potentially push you into a higher tax bracket (5).<\/p>\n That\u2019s why firms like Vanguard Group often favor a more gradual approach, converting smaller amounts over time to stay within lower tax brackets (6).<\/p>\n Another consideration is that higher income in retirement doesn\u2019t just affect your tax bill. It can also raise Medicare premiums through IRMAA, according to Medicare rules (7), and may expose investment income to an additional tax, according to the IRS (8).<\/p>\n What looks like a smart tax move on paper can come with hidden costs if it\u2019s not carefully managed.<\/p>\n Some may consider opening Roth or custodial accounts in their children\u2019s names to pass along wealth early, but that strategy comes with trade-offs. As Fidelity Investments notes, once money is placed in a custodial account, it legally belongs to the child. This means you give up control and flexibility you might need later (9).<\/p>\n The U.S. Department of the Treasury notes that inherited Roth IRAs already offer a relatively tax-efficient path, with beneficiaries typically having 10 years to withdraw the funds (10). For many families, keeping assets in a parent\u2019s account until inheritance makes more sense.<\/p>\n Timing is another risk. Retiring just before or during a market downturn can mean lasting damage to a portfolio. Pulling money out while investments are down locks in losses and reduces the chance of recovery. Some planners suggest keeping a cash cushion or other sources of income early in retirement to provide time and flexibility.<\/p>\n For Jim, retiring at 60 with $850,000 isn\u2019t necessarily unrealistic. The key is flexibility. Spending, taxes and markets will not follow a script, so leaving room to adjust can improve the odds of making the money last.<\/p>\n Join 250,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines<\/a>.<\/p>\n Fidelity Investments (1<\/a>); U.S. Bureau of Labor Statistics (2<\/a>); Forbes (3<\/a>); Kaiser Family Foundation (4<\/a>); Internal Revenue Service (5<\/a>); Vanguard Group (6<\/a>); Medical News Today (7<\/a>); Internal Revenue Service (8<\/a>); Fidelity Investments (9<\/a>); Internal Revenue Service (10<\/a>)<\/p>\n This article originally appeared on Moneywise.com<\/a> under the title: Jim wants to retire at 60 with $850K. Taxes, markets and costs could derail his plan<\/a><\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"Imagine Jim, who is 59, sitting on about $850,000 in a 401(k) and hoping to retire at 60.…\n","protected":false},"author":2,"featured_media":409632,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[8500,114,1125,31817,268,85,58839,46,3890,122149,44833,266,267,2356,1759,47039],"class_list":{"0":"post-409631","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-bureau-of-labor-statistics","9":"tag-business","10":"tag-dave-ramsey","11":"tag-fidelity-investments","12":"tag-finance","13":"tag-il","14":"tag-internal-revenue-service","15":"tag-israel","16":"tag-jeff-bezos","17":"tag-jim","18":"tag-kaiser-family-foundation","19":"tag-personal-finance","20":"tag-personalfinance","21":"tag-robert-kiyosaki","22":"tag-social-security","23":"tag-vanguard-group"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/409631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=409631"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/409631\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/409632"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=409631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=409631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=409631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}