Simple retirement calculations you can do today

Dear Pete,

My wife is 63 and is retired. She has $1 million in her 401k and is not drawing from it. She is receiving about 4% return on this account. She receives $3800 per month from her pension, for the rest of her life. I will not receive anything from her pension when she dies. She is currently not receiving social security because she is waiting until full benefit age.

I am 54, and I have $450,000 in my 401k. My pension is currently valued at $275,000, and I make $202,000 per year gross. I max-out contributions to my 401k each year and my company matches at 7%.

We would like to have a combined income of at least $6,000-$8,000 per month when I retire.

I’d like to retire at 60. Can I?


The easy answer is yes, you can. But I want to dig deeper and show you the math that helped me come up with this answer.

It will take about $2.4 million to generate the $96,000 a year/$8,000 a month you want in retirement when using the widely accepted 4% distribution rate. If you want to be even more conservative you can go with a 3% rate. If you do, you’ll need $3.2 million to generate the income you want.

To see how I arrived at the initial $2.4 million figure you’ll multiply your desired monthly income (in this case $8,000) by 12, for the months of the year, and then divide the total by your preferred withdrawal rate. $8,000 times 12 is $96,000. $96,000 divided by 4% is $2.4 million. This of course, assumes you have no other sources of income to account for.

Which of course, is unlikely for most people. Most of us will have at least one other source of income, Social Security. Others will have pensions and part-time work to supplement. In your case, Dave, you have several other income sources. Let’s subtract those from your $8,000 a month desired income. We’ll subtract the $3,800 from your wife’s pension and the $2,000 which is your wife’s estimated Social Security pay out. You’ll actually only need to generate $2,200 in income when you retire at age 60.

Using the calculation we just went through, you’ll approximately need $660,000 in retirement assets to generate this income at a 4% withdrawal rate.

The only other wrinkle will be replacing your wife’s pension income in the event she passes before you. Life insurance could be a big help in replacing the $3,800 more a month in income you’ll need though.

This is just an overview though. Please see a financial advisor to help you work through the details.

Read my full Indy Star column here.

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