Can I Retire in Three Years?

Summary

Episode Summary: "Can I Retire in Three Years?"

Podcast: Jill on Money with Jill Schlesinger
Host: Jill Schlesinger, CFP®
Release Date: December 21, 2024
Episode Title: Can I Retire in Three Years?

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Introduction

In this episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger delves into the pressing question from a listener contemplating retirement in the near future. The episode provides a comprehensive financial assessment, offering valuable insights and actionable advice for anyone considering an early retirement.

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Caller Profile: Michael from Delaware [02:32]

Michael, a 57-year-old professional from Delaware, reaches out with the aspiration to retire by age 60. He shares his current employment situation, financial standings, and retirement plans, seeking Jill's expert guidance on whether his goal is achievable.

Key Details:

• Age: 57
• Marital Status: Married to a 56-year-old wife
• Current Employment: Works in a corporate environment after his company was acquired seven years ago. He enjoys his job but feels the corporate shift has diminished his work satisfaction.
• Wife’s Retirement: His wife retired 10 years ago from the post office, receiving a modest pension of $900/month, which is set up to continue to him in the event of her passing.

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Financial Assessment

Jill conducts a thorough evaluation of Michael and his wife’s financial situation, covering income, savings, investments, and expenses.

Income:

• Michael’s Annual Salary: $190,000
• Retirement Contributions:
  • Michael: Contributing 15% to a traditional 401(k), including catch-up contributions, with a current balance of $780,000.
  • Wife: Contributing to the Thrift Savings Plan (TSP), with a balance of $600,000.
• Roth IRAs: Combined balance of $320,000 from backdoor Roth contributions.
• Brokerage Account: $130,000 at Wells Fargo, managed personally.
• Cash Reserves: $670,000 in savings, recently increased due to selling a New Jersey home, which provided additional liquidity.

Assets:

• Home in Delaware: Purchased outright for $400,000.

Expenses:

• Estimated Monthly Expenses: Approximately $4,000, potentially increasing slightly upon retirement.
• One-Time Expenses: Planning to allocate $50,000 for home improvements.
• Emergency Reserve Goal: Maintaining between $300,000 to $400,000 post-retirement.

Support and Dependents:

• Children: Two adult children, no financial dependents currently.
• Financial Obligations: Minimal, with around $15,000 provided as one-time assistance to children.

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Analysis and Recommendations

Retirement Feasibility: Jill evaluates whether Michael can retire in three years by analyzing his savings rate, investment growth, and projected expenses.

Key Points:

• Savings Trajectory: With three more years of saving, Michael’s retirement accounts are expected to grow substantially, potentially surpassing $800,000 in savings.
• Spending Strategy: To retire by 60, Michael may need to strategically spend down his non-retirement savings to cover expenses until Social Security kicks in at age 67.
• Social Security Projections:
  • Michael’s Benefit: Approximately $3,200/month at 67.
  • Wife’s Benefit: Approximately $1,800/month at 67.

Advice Provided:

1. Conservative Asset Management: Jill advises treating non-retirement savings and brokerage accounts more conservatively, ensuring stable funds are available to cover expenses during the early retirement years.
2. Spending Down Savings: Emphasizes the importance of being prepared to spend down approximately half of the non-retirement savings to bridge the gap until Social Security benefits commence.
3. Emergency Fund Allocation: Recommend maintaining a robust emergency reserve (between $300,000 to $400,000) to provide financial security without over-reliance on liquid assets.
4. Downsizing Benefits: Highlighting the positive impact of downsizing their home, which has significantly reduced expenses and increased available cash reserves.
5. Life Insurance and Estate Planning: Confirmation that Michael and his wife have adequate life insurance ($1 million each) and comprehensive estate plans, including wills and trusts.

Notable Quotes:

• Jill Schlesinger [09:05]: “You really don't have to work. You may want to work, but I don't think you're going to have to work.”
• Michael [03:08]: “It's not horrible, but it's not great.”
• Jill Schlesinger [13:32]: “This was a good move on your part. I think you're good.”

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Conclusions

Jill concludes that Michael is well-positioned to retire in three years, provided he is willing to adopt a more conservative financial approach with his non-retirement savings. By strategically spending down his brokerage and savings accounts, maintaining a solid emergency fund, and leveraging his existing retirement benefits, Michael can achieve his retirement goal without the necessity of part-time work.

Final Takeaways:

• Preparedness is Key: Early and consistent saving has placed Michael and his wife in a strong financial position.
• Strategic Spending: Effective management of non-retirement assets is crucial to bridge the gap until Social Security becomes available.
• Confidence in Retirement: With careful planning and disciplined financial management, retiring within the desired timeline is attainable.

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Final Thoughts

This episode underscores the importance of personalized financial planning and the value of seeking expert advice when making significant life decisions like retirement. Jill Schlesinger’s insightful analysis provides a roadmap for listeners in similar situations, emphasizing that with the right strategies, early retirement can be a realistic goal.

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Listen to more episodes and subscribe to Jill on Money on your favorite podcast platform to gain further financial insights and guidance.

Transcript

[Jill Schlesinger]

Hey gang, it's the holidays and I know that means you're going to spend a lot of time with your family. And not to be a buzzkill, but you ever wonder what would happen if you were gone? Would your family be protected? Well, policygenius is a place where you can find and buy life insurance. And it's so simple. With policygenius you can find life insurance policies that start at just $292 per year for $1 million of coverage. Some options are 100% online and let you avoid unnecessary medical, medical exams and you know, whenever someone comes on the air with us, we're always asking about estate planning and life insurance because we want to make sure that you have the peace of mind that the people you leave behind are covered. It could be for ongoing expenses, the payoff of a mortgage, maybe you'd like to fund education or retirement, secure your families tomorrow. So you have peace of mind. Today, head to policygenius.com to get your free life insurance quotes and see how much you could save. That's policygenius. Well, here it is. It is the holiday season. I know it snuck up on you and I know that there are a lot of competing forces for your dollars during the holidays. Which is why you may want to check out Klarna. Klarna is your smarter everyday spending partner for the holiday season. You can use Klarna's Pay in 4 product to split your purchase into four interest free payments. They've also got a new cashback feature that makes it easier for you to spend smarter and other products like the Klarna car, Klarna app and new Klarna Balance. Choose Klarna at your favorite retailers or shop [e-mail] California resident loans made or arranged pursuant to a California Finance Law License NMLS number 1353190 Klarna balance account required. Klarna may get a commission. Limitations, terms and conditions apply. Welcome, welcome. It's the Jill on Money Show. It is Saturday, December 21st and we are here answering your financial questions. If you've got one, just go to the website jillonmoney.com and click the contact Us button. We'll get your note if you'd like to join us live. Don't forget, check that box. Mark will do everything else while you're on the website. Don't forget to sign up for the free weekly newsletter. It comes out every single Friday. Right now let's talk to Michael who's on the line from Delaware. What brings you to us? Tell Us. What's going on?

[Michael]

Well, I started listening to you guys a couple of months ago and I hear everyone talking about retirement. And, you know, I'm 57 and I, I want to retire by 60, so.

[Jill Schlesinger]

All right, you have been working for a long time, I presume. And so are you unhappy at work or is it. Where are you? And you're like, you're sort of the emotional part of this.

[Michael]

Well, my company was bought about seven years ago and it's, it's very corporate, so not thrilled. But I love what I do, so.

[Jill Schlesinger]

Okay, so it's not horrible.

[Michael]

It's not horrible, but it's not great.

[Jill Schlesinger]

It's not what it was. You really did love it?

[Michael]

Yes.

[Jill Schlesinger]

Okay, so tell us about a little bit about yourself. So you said you're 57. Are you married, partnered, Single? What's your situation?

[Michael]

Married? My wife is 56 and she's fortunate to retire. She retired 10 years ago, actually.

[Jill Schlesinger]

How, how come? Like, what was she doing?

[Michael]

She worked for the post office.

[Jill Schlesinger]

Oh, that sounds like a pension. Does she receive a pension?

[Michael]

Yep, she has a. Not the full pension, but it was a small pension. So we, we made the decision. Well, she made the decision. She wasn't really happy. And I said, if you're not happy, then let's try it and see what, you know, if, if you need to go find another job, then, you know, you'll do it.

[Jill Schlesinger]

All right, what's her pension?

[Michael]

900Amonth.

[Jill Schlesinger]

And is that just based on her life or is it. If she were to die, would you get part of it?

[Michael]

Yes, we set it up that way.

[Jill Schlesinger]

Okay, got it. All right, so that's 900amonth from her. How much do you earn?

[Michael]

About 190.

[Jill Schlesinger]

Do you put money into a retirement plan? Currently?

[Michael]

Yes.

[Jill Schlesinger]

How much?

[Michael]

About 15%.

[Jill Schlesinger]

All right, so you're maxing out. You make your catch up contribution also, right?

[Michael]

Yep.

[Jill Schlesinger]

Okay. Is it a traditional that you're contributing to or a Roth?

[Michael]

It is traditional.

[Jill Schlesinger]

How much is in there right now?

[Michael]

About 780.

[Jill Schlesinger]

Did your wife also have a retirement plan from, you know, a supplemental of four. What would it be?

[Michael]

TSP 600.

[Jill Schlesinger]

And that's still on the TSP?

[Michael]

Yes.

[Jill Schlesinger]

Okay, besides your traditional and her TSP, any other retirement assets, any Roths or old IRAs?

[Michael]

Yes, we have Roth. The Roth IRA.

[Jill Schlesinger]

Okay, how much in the Roth IRAs?

[Michael]

It is about, between us both, I believe it's about $320,000.

[Jill Schlesinger]

Great. That's a lot of money that's got, got shoved in there.

[Michael]

Yeah, we've been. We started very early.

[Jill Schlesinger]

That's great. Okay, traditional tsp, Roth. What other assets are out there and around in your life?

[Michael]

We have a brokerage account for about 130.

[Jill Schlesinger]

Are you managing that yourselves?

[Michael]

Yes.

[Jill Schlesinger]

Okay, and where is that held?

[Michael]

It is at Wells Fargo.

[Jill Schlesinger]

And you're managing it yourself? That's an interesting place to have it. Is that because you bank at Wells Fargo?

[Michael]

Yes.

[Jill Schlesinger]

Okay, got it. Brokerage account. How about money in the bank?

[Michael]

We have actually about 670,000.

[Jill Schlesinger]

Planning on doing something with that pile of cash?

[Michael]

Yes. Well, we sold our house in. In New Jersey and we had some cash there. I want to do something and not sure yet what. I do have a financial advisor help me, like with the Roth IRAs and stuff.

[Jill Schlesinger]

Okay.

[Michael]

I just. On the brokerage side, I kind of play myself in the market.

[Jill Schlesinger]

Okay, I gotcha. Where is the financial advisor at what company?

[Michael]

Wells Fargo as well.

[Jill Schlesinger]

And is this person a certified financial planner or is this person a broker who gets paid on commission? How they get paid?

[Michael]

They are a planner.

[Jill Schlesinger]

Okay. You bought a home in Delaware or are you renting?

[Michael]

We bought a home in Delaware. We bought it outright.

[Jill Schlesinger]

How much is that worth?

[Michael]

400.

[Jill Schlesinger]

So you got all this money in cash, you got the brokerage account. How much do you think, relatively speaking? I know it's hard to get you exact. How much do you think you need to live on?

[Michael]

Yeah, so we just, you know, started living in Delaware, so it's hard to figure out our monthly expenses yet, but estimating that it went down because living here, so about 4000amonth maybe, but maybe when we do retire, maybe a little more.

[Jill Schlesinger]

Because let's use 5,000 just. Just for the heck of it. Right. So right now, with this low cost of. Lower cost of living with no mortgage, with cash in the bank, your cash flow must be pretty good. Are you al. Are you doing backdoor Roths? Is that how you have all that Roth money?

[Michael]

Yes.

[Jill Schlesinger]

Okay, what else are you doing with the extra money? Is it all going into the brokerage account? Is that how it's accumulating?

[Michael]

No, it's going in. Well, we've been doing some stuff around the house, so we've been spending money that way, but normally, yes, it would either go in a brokerage account or into the savings account.

[Jill Schlesinger]

Okay. Are there any kids or any parents, like anyone relying on you guys right now in terms of financially?

[Michael]

We have two adult children that aren't supposed to be relying on us. So. No, not really.

[Jill Schlesinger]

I love. No, not really. Mark, how much money? Let's just get. Let's give you play a game. Mark, what do you think? No, not really. Means in terms of quantifying it. I'm going to give you my guess. My guess is that 10 grand a year goes to these two adult kids. Mark, what do you think? That was exactly my guess too. Yeah. So how much is it? Tell us the truth. There's some truth serum right now.

[Michael]

Let's go a little over 10.

[Jill Schlesinger]

Yeah, a little over 10. Like 20 or a little over.

[Michael]

No, we did a one time help for about 15 so.

[Jill Schlesinger]

Okay. All right. So all right. You one time ish. Are the two adult children, are they married? Do they have children?

[Michael]

Yes. Yeah.

[Jill Schlesinger]

All right. What about anything else you need to do for the new house? Any money that you think you might need to spend before we really attack? Like what are we doing with all this cash?

[Michael]

Right. Probably about 50 we're going to do in the new house.

[Jill Schlesinger]

Okay. So I can say that out of the, out of the 670 in emergency reserve, I'm going to just say you said 50. Let's say 70 is for house stuff. And then what do you think is the amount of money you like to have in that emergency reserve that just makes you feel okay?

[Michael]

Anywhere between 30 and 40.

[Jill Schlesinger]

If you were to retire at age 60, what would happen between. Let's start with what happens between age 60 and 67 when you can claim Social Security. You just going to try to spend some of your money down? Is that what you think?

[Michael]

Either that and. Or work part time.

[Jill Schlesinger]

Do you really want to work part time? Because I'll factor that in. But I just don't want to do it. I want to first see like what you really really want to do.

[Michael]

I don't know.

[Jill Schlesinger]

Okay, I know I'm getting grant. Let's look at it this way. Let's pretend that you. Let's. Let's pretend you don't work. Let's see if it works without you doing part time work. So we need 60 grand a year out of that emergency reserve fund. I'm just going to look at this right now. So we've got three more years of you saving. So let me just do a quick back of the envelope so we can do this all together. Here's what I'm doing gang. I'm saying, okay, he's got 780 in your retirement account and that amount will be increasing because you're going to have three more years or two more years. What's the birthday line? Do I have two years of saving? Or three years of saving?

[Michael]

Two and a half.

[Jill Schlesinger]

How much money do you really truly just be like, what do you think you're going to be able to save going forward? Like, how much more money should I assume goes into that brokerage or emergency reserve fund?

[Michael]

I would say at least 4,000amonth.

[Jill Schlesinger]

All right, so 50 grand. So two more years. So another hundred. So Mark, how are you feeling about this so far? Based on their level of expenses? I'm feeling very good. I'm feeling pretty good too, which is remarkable because when I hear 57, I'm like, no way. But now I'm putting my pen to paper. So here's what we have to do. We have to figure that at age 60, from 60 to 67, we need to spend down 60 or 70 grand a year, right? So we have seven years where we're spending that down. So you're, you're, you will have probably saved somewhere like eight hundred and something thousand dollars in of your, you know, sort of savings investment account, let's call it non retirement account. Let's presume half of that gets spent so that at age 67 you end up with about 400 grand that's invested slash in emergency reserves. Tell me what happens at age 67. What is your Social Security benefit?

[Michael]

I believe it's like 3200.

[Jill Schlesinger]

And your wife's is she, will she, she'll have her own or not. I don't remember. In the postal service. Do you, do you give up Social Security?

[Michael]

No, no, she, she actually. And I don't. It's something weird. So from when she's supposed to retire, which is at 57 and nine months, there's some kind of step.

[Jill Schlesinger]

Oh yes. And then when she goes on Social Security comes down.

[Michael]

Right.

[Jill Schlesinger]

So what's that? What's the step?

[Michael]

I'm not sure what it is.

[Jill Schlesinger]

Do we know what her Social Security benefit is?

[Michael]

About like 1800 maybe?

[Jill Schlesinger]

That sounds right. That sounds good. Okay, so here's what we got. At age 67, you will have your Social Security of 3200amonth. We'll have her pension and she'll have her Social Security of 1,800amonth, which basically gives you six grand a month. So it almost will meet your needs. Not 100%. So the only thing that holds you back on your retirement plan is that you have to be willing to spend down probably about half of the money you have in non retirement savings. That's really what it is. And you can make it. So here's the deal. You really don't have to work. You may want to work, but I don't think you're going to have to work. But I do think that what you have to really be considerate of is that I don't think you have to have all of your money in cash, but that emergency reserve fund and that brokerage account have to be treated as a much more conservative approach than you would for your retirement assets because you are going to spend about half of it down. Okay. And if you're willing to do that, that's fine. Some people freak out about this piece of advice. Okay. And if you're the kind of person who's been a very good saver your whole life, pulling money out is hard. It really is. It's a very strange feeling. If that's the case, the way that you can mitigate that feeling is that you could work part time if you want to. You don't have to, though. I think you're really fine. Something really wild happened is that you downsize before you really need to. And that is. That's what is the big difference, I think. What was your old house worth?

[Michael]

Almost 700.

[Jill Schlesinger]

Yeah. That's big. How does it. So this was a. This is a good move on your part. I think you're good. Do you guys have life insurance?

[Michael]

Yes, we have about a million each.

[Jill Schlesinger]

Okay. And what about wills and trusts or healthcare proxies, anything like that?

[Michael]

Yes, we have it all.

[Jill Schlesinger]

All right, well, listen, we wish you the best of luck and get excited about retirement. It's only a couple, two and a half years away. It's pretty amazing. If you've got a financial question or a real life question that impacts your finances, get in touch with us. Just go to jillonmoney.com and click the Contact Us button. You can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. Please leave us a rating and review wherever you listen and of course, try to do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow. Hi, this is Jill Schlesinger. Being a business owner means you're always on adapting, innovating and making big moves to take your vision to the next level. You need solutions that match your pace, offering flexibility, rewards, and tools to help you keep going strong. That's where the American Express Business Platinum card comes in. A partner for navigating today's business world. You can have a flexible spending limit that adapts with your business, plus the ability to earn one and a half times membership Rewards points on select purchases so you earn rewards that can take your business further. See how the American Express Business Platinum Card gives business owners like you the tools and rewards to do more of what they love. Not all purchases will be approved. Terms and points cap apply. Learn more@american express.com Amex Business I'm Jenna Fisher.

[Jenna Fisher]

And I'm Angela Kinsey. We are best friends and together we have the podcast Office Ladies where we rewatched every single episode of the Office with insane behind the scenes stories, hilarious guests and lots of laughs. Guess who's sitting next to me?

[Michael]

Steve.

[Jenna Fisher]

It is my girl in the studio. Every Wednesday we'll be sharing even more exclusive stories from the Office and our friendship with brand new guests and we'll be digging into our mailbag to answer your questions and comments. So join us for brand new Office Ladies 6.0 episodes every Wednesday. Plus on Mondays we are taking a second drink. You can revisit all the Office Ladies rewatch episodes every Monday with new bonus tidbits before every episode. Well, we can't wait to see you there. Follow and listen to Office Ladies on the free Odysee app and wherever you get your podcasts.