I’m 51 and Married With $4M. I Just Got Laid Off. Can I Retire?

Question:

“I’m 51 and married. My wife is 48 and our son is 14. I have $3 million in taxable accounts and $1 million in a regular 401(k). We are renters. My expenses, not including healthcare, are about $7,000 a month. I plan to budget $60,000 a year for ACA premiums and other payments. I don’t own a home and don’t plan to buy one. I have $300,000 for my son in a 529 account. I’ve been laid off and I want to retire. Is this doable? Who should I consult to map out my future?” 

Answer:

The short answer here is yes, it’s likely doable — and it might be smart to consult a certified financial planner to make a solid plan. (You can use this free tool to get matched with fiduciary advisers from our ad parter SmartAsset, as well as sites like CFP Board and NAPFA.)

“Your $7,000 a month plus $60,000 for healthcare is about $144,000 a year, and on $4 million, that’s a 3.6% withdrawal rate which holds up even for a retirement this long. But before you pull the trigger, two big variables have to get pinned down,” says certified financial planner Stoy Hall at Black Mammoth.

First, you don’t mention your Social Security, which is a huge piece of the puzzle. “Pull your projected benefit from your SSA.gov account. Depending on when you claim, anywhere from 62 to 70, that’s a guaranteed income floor for life that lowers how hard your portfolio has to work later. Get this number before you finalize anything,” says Hall.

Second, a lot of your money isn’t actually available yet. “Your $3 million in taxable accounts is what funds the next eight-plus years. The $1 million in the 401(k) is basically locked until 59½ without a penalty. You’re 51 and laid off, so the Rule of 55 [which allows penalty-free withdrawals from a 401(k) or 403(b) if you leave your job in or after the year you turn 55] doesn’t help here,” Hall adds. “You could unlock it early with a 72(t) withdrawal schedule [where you take penalty-free distributions from retirement accounts before age 59½, but withdrawals have to be spread out over five years using an approved payment calculation issued by the IRS] if you ever had to, but with $3 million in taxable accounts, you probably won’t. Plan the bridge around the taxable money, not the full $4 million.”

But one of the biggest unknowns in your situation is your investment allocation. “A $4 million portfolio invested primarily in equities will behave very differently than one invested conservatively. The appropriate withdrawal strategy depends heavily on the portfolio’s expected return, volatility and risk tolerance. It’s also important to recognize that not all withdrawal rates remain steady and equal throughout retirement,” says certified financial planner Nicole Farbo at Johnson Financial Group.

On paper, retirement is certainly possible with your investable assets and annual spending. But keep in mind that “a 51-year-old isn’t planning just a 25-year retirement. It’s potentially 40 years or more, so sequence of return risk, inflation, taxes, healthcare costs and future spending change all deserve careful analysis before making that decision,” says certified financial planner Trent Von Ahsen at Cedar Point Capital.

What kind of pro can help?

Von Ahsen recommends working with a fee-only certified financial planner who specializes in retirement income and tax planning. “Your decision involves much more than running a Monte Carlo analysis. It requires coordinating investment withdrawals, tax strategy, ACA premium optimization, future Roth conversion opportunities, Social Security timing and long-term health care planning,” he says, adding that “spending a few thousand dollars on a comprehensive plan before walking away from a career could be one of the highest returning investments you’ll ever make.”

In particular, you might want a CFP who “can build a comprehensive financial plan that goes far beyond a simple withdrawal-rate calculation,” says Farbo. “With thoughtful planning and continuous oversight, it may absolutely be achievable. The confidence to make that decision comes from a personalized financial plan, not just a rate of withdrawal.” (You can use this free tool to get matched with fiduciary advisers from our ad parter SmartAsset, as well as sites like CFP Board and NAPFA.)

As seen in Market Watch.