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?

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.

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.

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.

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.”

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.

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.

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