How can we secure a healthy financial income in our retirement?
I am 62 years and my wife is 50. I am making $150K a year and my wife makes $80K a year. I have a 401(k) plan with a $600K balance and my wife's 401(k) plan has a $100K balance. I have a $500K adjustable rate mortgage with an interest rate at 2.125%.
What is your advice on how to secure a healthy financial income in retirement? We both plan to retire in 5 years.
Thank you for your question and the information you shared. Each persons (couples) financial situation is unique and should be planned for accordingly. I would suggest you start by thinking about what your hopes, dreams, and goals are. Once you have crystallized those, you could go through a comprehensive process with a CFP professional to prioritize your goals and put a plan in place to accomplish everything you desire.
It is important to find an adviser that you like, one that shares similar philosophies, one that you connect with on a fundamental level. Once you have this established, building trust and a financial plan is much simpler.
$700K seems like a lot of money. Sadly it is not. Most financial advisors will use 4% as a sustainable return over the remainder of your lifetimes. Even if your retirement accounts were to double in 5 years (unlikely), using a 4% rule of thumb means that $1.4 million will give you $56K as retirement income. Add to that social security of perhaps $5K per month ($60K annually) and you will have $116K as retirement income as opposed to a current income of $230K. To further complicate your situation, you have an adjustable mortgage that in 5 years will probably jump to 4 to 6% increasing your monthly outgo. If you both plan to retire in 5 years, you will probably have to live on 40% of what you have today.
I don't believe you can count on a healthy financial retirement income. I believe the others who answered with "congratulations" are misleading and not giving the honest answers you need right now. I don't believe you will be able to both retire in 5 years. I also believe you need a non-traditional financial plan or one of you will never be able to financially retire with a healthy financial income.
And do not convert your 401(k) to an IRA. Check the fees. Check the returns. IRA fees are generally significantly higher than 401(k) fees and will for the same investments simply enrich the financial advisor to your disadvantage.
I am sorry to deliver such bad news. Right now you have 5 to 8 years to get a plan set. You will need to begin to make rounds of financial advisors and let them give you a financial plan. Make sure the financial advisor is a "fiduciary" so every decision has to be make in your best interest. That means they either have a Series 65 license or Series 7 and 66. Do not go to any large firm - they are broker-dealers. For each financial advisor ask for a published and regulator reviewed composite on all their client returns. Make sure it is at least 10 years.
Good luck and I sincerely hope you find an advisor who can get you to a healthy financial income. There are, in my opinion, very few, but they do exist. I wish you the very best.
Congratulations on building some great assets in preparation for your retirement!
One way for you to determine whether you're "in the ballpark" in terms of being ready to retire is to calculate your "Retirement Account Multiple" or RAM. Use this link to find out how:
If you do the math and get a RAM of 12 or more, you're probably in fantastic shape for retirement and if you get a RAM of less than 7, you may want to adjust your plans.
If you're somewhere in between 7 & 12, it does make sense to consult with a financial advisor to create a formal Retirement Plan on your behalf. You can do this as a one time service or potentially work with a planner on a retainer basis.
Specifically in your case, the RAM may not be the best measure of your retirement readiness because of your large outstanding mortgage balance. I'd like to see you lock in a fixed rate on that loan while rates still remain low to take interest rate risk off the table as you head toward retirement.
Finally, when one or both of you stop working, I'd recommend you roll your 401(k) plan(s) over to your own IRA. You'll have access to a wider variety of investment options and will likely be able to reduce the fees you are paying, which will boost your returns.
Best of luck planning your retirement!
With Kind Regards,
First off, congratulations! You have done well for yourselves and you have great income and assets.
I really think you and your wife should sit down with a qualified financial professional to discuss not only your retirement income needs, but also what does "living your best life" look like. It is possible that it may or may not fit into the timeframe you are allowing.
Taking into consideration that most investors don't usually align their capital with their values, you want to sit down with someone that can walk you through scenarios and things you may not have considered. I've seen it more than I can count that when capital is not aligned with values, both the client and the advisor will be miserable. Anything else, would be an injustice to how hard you have worked to this point.
Hope this helps!
I concur with Dominique. I think it's important for you and your wife to take to the time to meet with several qualified financial professionals to help you develop a tax efficient retirement income plan. You've done a great job accumulating assets. My other piece of advice is to have at least one of you defer Social Security Benefits until Full Retirement Age (FRA). Social Security benefits offer inflation adjusted income, tax-efficient income, spousal benefits, survivor income benefits, etc. Having said that, it is important to view Social Security as a valuable asset, not simply a month check.