Ask an Advisor: With $1.1M Cash at 60, $880K in My 401(k), and Social Security, Is It Time to Retire?

I am 60 years old, married, with no mortgage. We also have $1.1 million in liquid cash and $880,000 in a 401(k).  I will have two pensions, which have not started yet, and my wife will have one pension, all three adding up to approximately $3,500 a month if we took them today. Also, we have paid into Social Security. At 65 years old, we’ll pull in roughly $5,000 a month combined. I will have medical and dental insurance through my state government for me and my wife as long as we live. Not sure if I can retire now or wait a few more years to build on my pension?

-Fred

The answer to questions like this is always, “It depends.” 

Yes, there is certainly a heavy dose of math involved in arriving at your answer. But you still need to interpret that math and its conclusions in a way that you are comfortable with based on your own situation and attitudes toward money, security and risk. 

I’ll highlight some of the things you should consider as you work through your decision, but there is no way to give you a concise answer here. I strongly encourage you to do a significant amount of research if you plan to do this by yourself or consult a financial advisor. 

Your Expenses in Retirement

Incomes and expenses are different for everyone in retirement, so we can’t know if your income is sufficient without knowing your expenses. Regardless of income streams (pensions or Social Security) and the savings you have to supplement them (cash and 401(k)), it’s important to also estimate the amount you’ll need to spend each month. 

Doing this allows you to compare your income and expenses, just like you do while you’re still working. 

One way to get a rough draft of your retirement budget is to start with what you currently spend each month. From there, you can adjust based on any planned or expected changes once you retire. This might be buying a new car, taking a celebratory vacation or accounting for changes to your health insurance premiums. 

The fact that you have paid off your house is a major plus.

Sources of Income

Once you’ve estimated your expenses, consider the different sources of income you have in retirement. Some are guaranteed, while others are subject to risk through market volatility. Here’s what to look at.

Pensions and Social Security

I like to look at guaranteed income first. For you, that would be pensions and Social Security. Rather than dig into the nuance of when you claim your benefit (although claiming strategies are certainly something to consider), let’s go with the numbers you mentioned. At 65, you’d have about $8,500 per month coming in from fixed sources. As a side note, check to see if your pension includes an annual inflation adjustment.