A lot of Americans appear to be eager to leave the workplace grind behind.<\/p>\n
Around 59% of them hope to retire before age 65, according to YouGov\u2019s Clocking Out: U.S. Retirement Report 2024 (1). Unfortunately, wanting to retire and being ready to retire are two very different things.<\/p>\n
Must Read <\/p>\n
Let\u2019s say, for example, there\u2019s a 60-year-old named Tim who is sick of working at this office job. He has $200,000 saved in his 401(k) account, and he wants to quit his job at the end of the year, but he isn\u2019t sure exactly what he should do with his 401(k).<\/p>\n
So what should Tim do to set himself up for a secure retirement?<\/p>\n
Don\u2019t retire until you understand your income sources <\/p>\n
Before you even consider retiring or start thinking about where to put your money, you must make sure you have enough to retire on.<\/p>\n
You don\u2019t become eligible for Social Security retirement benefits until 62, and a claim before your full retirement age (FRA) will shrink your monthly benefits. In some cases, it may be best to wait until 70<\/a> to claim Social Security, in order to grow your benefit as much as possible and give yourself the best chance of maxing out your lifetime income. But there are arguments against that method as well.<\/p>\n Either way, for Tim and others thinking about retiring at a younger age, you\u2019ll need a plan to support yourself without Social Security until at least 62 and ideally for longer. Since you most likely will need to replace about 80% of your pre-retirement income, and since most people don\u2019t have pensions that offer guaranteed income from employers, a decent sized nest egg is necessary.<\/p>\n You can\u2019t withdraw money from your retirement accounts too quickly, or you risk draining the balance to $0 while you still need the money. Many retirees follow the 4% rule<\/a>, which says you can withdraw 4% of your account balance in year one and adjust each year for inflation. Following this rule is supposed to give you a good chance of your money lasting for around 30 years, although there are other options (2) depending on your situation.<\/p>\n In this case, if Tim\u2019s only financial resource is his 401(k), he would generate around $8,000 (3) per year to live on. If he can\u2019t rely on his spouse or family to cover bills and other expenses, including healthcare, this isn\u2019t going to cut it. So, before Tim retires, he must make sure he has alternative funds.<\/p>\n Read More: Get rich from rising US property values with as little as $100 \u2014 and without the stress of angry tenants<\/a><\/p>\n Options for your 401(k) funds <\/p>\n If Tim does have a plan to support himself when retiring at 60 with $200,000 in his 401(k), then he must decide what to do with the money.<\/p>\n He may not actually have to move it. 401(k) administrators may let you keep the money in your current plan, especially if your balance is above a certain amount. This would mean he doesn\u2019t have to research other options, and may have access to some investments he wouldn\u2019t have otherwise. He may also benefit from Employee Retirement Security Act (4) (ERISA) protections. But he also won\u2019t have access to investment options outside of his plan and may owe high administrative fees.<\/p>\n He can also roll it over (5) into an IRA, which shouldn\u2019t have tax consequences if he keeps the money in the same kind of account (a traditional 401(k) into a traditional IRA). This opens the door to more investment choices and allows him to combine the money with other accounts. If he receives the money from his retirement plan, he must deposit it within 60 days (6) (although sometimes there are exceptions to this rule). He can also do a direct rollover, meaning the plan administrator makes the payment directly to another plan, which is often better.<\/p>\n Whether he keeps the money in the 401(k) or moves it, he\u2019ll need the right investment mix, as he\u2019s now relying on this account for income. He may not want to invest too heavily in risky assets, as he has less time to recover from downturns. However, if he\u2019s too conservative, his investments won\u2019t have as much of a chance to grow over time.<\/p>\n Ideally, he\u2019ll have cash in an emergency fund outside of his retirement account to cover around two years of living expenses. Then he can figure out the right investment mix for his situation and risk tolerance. One method is to subtract his age from 110 (7) and invest that percentage in equities, then invest the rest in less volatile assets such as bonds and CDs.<\/p>\n There are also options such as buying an annuity (8), which is a contract with an insurance company that can provide guaranteed income for life. However, fees can be high, so Tim should research this option carefully.<\/p>\n Ultimately, none of these approaches is likely to help him turn $200,000 into enough to live on by itself. But if he\u2019s done the math, has other income and is really ready to retire, keeping the money where it is, moving it into an IRA or potentially buying an annuity could all be possible moves that help Tim support himself during his retirement years.<\/p>\n You May Also Like <\/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 Article Sources <\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines<\/a>.<\/p>\n YouGov (1)<\/a>; ThinkAdvisor (2)<\/a>; Safe Money (3)<\/a>; U.S. Department of Labor (4)<\/a>; Fidelity Investments (5)<\/a>; Internal Revenue Service (6)<\/a>; SmartAsset (7)<\/a>; AARP (8)<\/a><\/p>\n This article originally appeared on Moneywise.com<\/a> under the title: I only have $200,000 in my 401(k) but I’m really sick of working. How can I use this money to retire soon at 60?<\/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":"A lot of Americans appear to be eager to leave the workplace grind behind. 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