Thank you for helping people with their retirement. Here is my situation and look forward to your comments.
I am 64 years old, single, and live in the Bay Area of California. I was diagnosed with cancer in July 2019 and stopped working in November of 2019. I went on disability for a year, through November 2020. The cancer treatments were successful and I am now cancer-free.
So now I am contemplating retiring. Financially, I own three rental homes that produce $1,250 per month in net income. My Social Security would be $2,500 per month if I take it now, or $3,000 per month if I wait until Full Retirement Age, which is 66½ years old. My accounts total $1.6 million, of which $700,000 are in individual retirement accounts, $600,000 invested in stocks with Fidelity and $300,000 in cash. My estimated expenses are $8,000 per month. In 2021 about $10,000 per month will be due to my COBRA health insurance premiums. In early 2022, I can enroll in Medicare.
Looking forward to your thoughts.
I am so happy to hear your cancer treatments were successful and you are cancer-free. That is a huge relief.
Financially, you appear to be safe to retire, advisers said. You’ve done a great job saving, and you have other sources of income, which is always comforting. With your current assets, you could possibly take about $60,000-$65,000 out of your portfolio every year, assuming it is properly diversified, and then use rental income and Social Security income to meet your needs, said Brenda Knox, a financial adviser at Financial Elements.
You may even be able to take less out of your portfolio after you’re done paying for COBRA. If you need $8,000 a month, less your Social Security and the money you get from rental properties, that would be about $4,250 a month ($51,000 a year), or 3% of your portfolio, “which is very doable,” said Scott Hammel, a financial adviser at Apeiron Planning Partners. Of course, these figures are dependent on various factors, including how your portfolios are allocated, if your expenses are more or less than you estimate and if anything unexpected pops up.
Still, there are a few points financial advisers brought up that I’d like to share with you.
First, one of the most important components to retirement planning is figuring out an estimate for how much you’ll be spending in it. You said your estimated expenses are $8,000 a month, or $96,000 a year. You seem to be diligent about your saving habits, but make sure you take every possible expense into consideration when making that estimate. Does it include a nice discretionary or travel budget, as well as Medicare and health care costs after 65? A single man can expect to spend $140,000 in retirement on health care alone , according to Fidelity Investments. Are you planning to ever move, and would that affect your monthly expenses? And don’t forget taxes, especially in California.
This might sound morbid, but also consider what your life expectancy will be — which can help you determine how you withdraw from your funds so that you’re sure to have enough to live comfortably your whole life. You’re cancer-free now, which is absolutely wonderful, but do you expect this to affect your health care costs later in life? And does your family have a history of living to an old age? A financial adviser can help you create a retirement spending plan as well as build a stable trajectory to meet all of your short-term and long-term needs. This moment of reflection could also help you decide when to take Social Security .
You may feel compelled to claim Social Security now, even though it’s earlier than your Full Retirement Age. And some advisers even suggest you do, given your medical history and depending on your family’s history of longevity, Hammel said. But you should do that in the first year after unemployment stops, so that the other income doesn’t make your Social Security taxable.
You might also want to wait until your Full Retirement Age, if you’re comfortable leaning on your other sources of income in the meantime, or even later. Once you claim Social Security early, that reduction in monthly benefits remains the same for the rest of your life. Comparatively, if you wait until Full Retirement Age, you get 100% of the benefits owed, and if you delay even longer, up until age 70, you would get more than you’re technically owed in benefits.
If you decide to hold off on claiming Social Security, you can instead convert some of your individual retirement account money to a Roth, which means you pay the tax now and then withdraw tax-free later on, or you can just withdraw from your IRAs as you go to meet your living expenses, Knox said.