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Help Me Retire

Dec. 25, 2021, 12:28 p.m. EST

I’m a 39-year-old single dad with $600,000 saved — I want to retire at 50 but don’t know how. What should I do?

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Alessandra Malito

Greetings!

I am a 39-year-old single father of one 16-year-old son. I have $70,000 in liquid savings, $530,000 invested in individual retirement accounts and owe $210,000 on a home worth $500,000. I also owe about $20,000 on my car.

My take-home income is $7,200 per month and my monthly expenses total about $4,000.

I do not have a current retirement plan with my job as they do not offer one. My ultimate dream is to be able to retire by age 50, but I most likely will not be happy sitting at home and will want to work. I am looking for the best option for me to save more for retirement and need some advice.

Thanks very much for your help

See: I’m retiring on my 78th birthday, have more than $200,000 in savings and share expenses with my 80-year-old boyfriend. Will I be OK?

Dear reader, 

I’m so glad that despite your employer not offering a retirement plan you are so determined to put money away for the future. That’s great, and a wonderful example for your son. 

Although it is unfortunate that you do not have access to an employer-sponsored retirement plan, you’re far from alone . One option is to diversify the types of investment accounts you have. 

You mention having individual retirement accounts, but you could look into opening a Roth IRA, which is funded with after-tax dollars. There are income restrictions depending on your adjusted gross income and tax filing status, so you’ll need to check that you’re eligible , but based on your take-home pay, that shouldn’t be a problem. “I would start there,” said Chris Hardy, a certified financial planner at Paramount Investment Advisors.  

Another option is a Health Savings Account, which typically is available with high deductible health plans. These accounts have triple the tax advantages, because the money contributed, invested and distributed is tax-free if used for qualified health expenses. The money need not be used in the year it was contributed, which means you could let the account balance grow through the years and use it for eligible expenses in retirement. 

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

A taxable brokerage account is another potential option for your investments. Many retirement accounts, including traditional IRAs, have a 10% penalty for funds withdrawn prior to age 59 ½ (the rules are a bit different for Roth accounts — for example, the individual’s own contributions are always available to them — and there are exceptions to this rule for traditional accounts and Roth accounts as well). 

“As you want to retire about 10 years before that age, building up a taxable brokerage account would be very useful so you have assets much easier to access without full tax and penalty being due,” said Brian Behl, a certified financial planner at Behl Wealth Management. With taxable brokerage accounts, investors pay tax on dividends and interest received and then capital gains on the sale of any appreciated investments. 

So those are a few possibilities for the investment vehicles you could use outside of an employer-sponsored account. Now think about how much money you’ll actually need for retirement. 

“At the core of any retirement strategy is determining cash flow needs,” Hardy said. “He will need to determine what is needed to cover fixed expenses and then what would be needed for those discretionary items (i.e., travel, newer vehicles, ‘stuff’).” After assessing the estimates for these expenses, you can calculate the sources of your income — your savings, any pensions, Social Security benefits and so on. 

One rule of thumb is the 4% rule, which is withdrawing 4% of your nest egg every year in retirement to cover your living expenses, Hardy said. For instance, someone with $1 million in retirement savings would withdraw $40,000 every year. Keep in mind, rules of thumb are just general principles — they do not work for everyone and there are numerous, personal factors that could alter how efficient they are in someone’s retirement calculations. 

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