I'm 60 With $960k in an IRA, $300k in a 401(k) and Would Expect a $2,400 Social Security Check. Can I Retire at 62?

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Many 60-year-olds with $960,000 in tax-deferred retirement accounts and a work history that will entitle them to $2,400 monthly from Social Security could probably retire in two years. However, much depends on circumstances. Individual lifestyle preferences, including local cost of living and plans for travel or other potentially costly recreational activities, could mean that delaying retirement for a period would make sense. Other factors to consider include your personal debt load, particularly whether you have an existing mortgage, and the outlook for your personal healthcare costs and overall longevity. Even a seemingly well-funded retirement could fall short if things turn out the wrong way.

A financial advisor can help project your income and expenses in retirement to aid your decision about when to retire. Use this free tool to match with vetted fiduciary financial advisors.

Deciding whether or not you can retire involves balancing your expected income in retirement against your expected expenses. If it appears you will likely have enough funds to pay your costs of living, with a cushion for contingencies, retirement may be feasible. Let's start with the income aspect.

The $960,000 combined balances of your IRA and 401(k) accounts could grow to $1,099,104 over the next two years if you assume a 7% average annual return. A more conservative investment strategy emphasizing capital preservation over growth might be more appropriate for someone near retirement. This could average 5% annual growth, potentially giving you $1,058,400 in two years.

The 4% guideline suggests you can safely withdraw 4% of your retirement account balance each year, increasing the amount annually by the rate of inflation. Using this rule of thumb, someone with $1,058,400 would withdraw 4% times $1,058,400, or $42,336, the first year of retirement. Assuming 2% inflation, in the second year they would withdraw 102% of that amount, or $43,183, and so on. Financial modeling using a wide range of possible financial scenarios indicates a high likelihood that this strategy will enable a nest egg to last at least 30 years.

Now let's turn to Social Security. These benefits are valuable sources of retirement income because they are guaranteed by the full faith and credit of the United States and include annual cost-of-living adjustments to counter the effects of inflation. Social Security pays you as long as you are alive and can continue paying your spouse and any dependents after you are gone.

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You can claim Social Security retirement benefits as early as age 62. Your $2,400 monthly benefit equals $28,800 annually. You could increase this by delaying claiming Social Security benefits. For each year you wait, the monthly amount grows 8%. If you wait five years, until full retirement age at 67, your benefit would be approximately $42,317. Delay another three years to age 70 and the benefit goes to approximately $53,306.

Assuming you claim Social Security at 62 and receive $28,800 annually, with $42,336 in investment income total first-year income comes to $71,136. This will increase annually more or less in step with inflation. Now let's look at expenses.

Remember, this example uses many simplified assumptions. A financial advisor can help you do the math for your retirement strategy.

One way to estimate retirement expenses is to use a guideline of 75% of your pre-retirement income. Data on average earnings by age indicates you will earn about $65,936 the year before your planned retirement age. According to this guideline, $65,936 times 75% or $49,452 is likely to be adequate to support your retirement lifestyle.

Actual figures for average retiree spending vary, but are generally lower. The Bureau of Labor Statistics reported that 2023 expenditures for households headed by someone 65 or older were $60,087 on average. The Social Security Administration, meanwhile, reported 2020 expenditures for households headed by someone 65 or older averaged $45,270.

A more customized way to project your retirement expenses is to take your current expenses and modify them to reflect changes after you stop working. For instance, you won't have expenses for retirement savings, work clothes or commuting costs. Adding up your current expenses may help you spot ways to reduce costs if necessary. For most people housing is their biggest expense in retirement, so moving to a lower-cost location can be an effective way to bring your spending in line with your income.

Taxes can be a significant concern in retirement. Retirement account withdrawals are taxable, and after age 75 (assuming you are 60 now) you'll have to start taking Required Minimum Distributions (RMDs) from your accounts. In your case, you are likely to be already withdrawing more than the RMD amounts, so this will probably not be an issue. Generally speaking, most people pay fewer taxes in retirement. However, at your income level up to 85% of your Social Security benefits will also be taxable.

If you have existing debt, such as a mortgage payment or student loans, loan payments may need to be considered in your budget. Healthcare costs tend to go up in retirement, and this can be especially consequential if you have health conditions requiring expensive treatment. Overall, however, your expected retirement income of $71,136 is likely to be comfortably more than your living expenses, assuming they fall into the typical range $45,207 to $60,087.

The choices you make can make a big difference in your bottom line. Consider speaking with a financial advisor for help with your own retirement planning.

Your financial resources suggest you may be able to retire at age 62 without having to compromise your lifestyle much if at all. However, you can increase your retirement income significantly by waiting to claim Social Security benefits. That could help you cover your expenses if you expect to spend more in retirement than the typical retiree. You could also lower expenses by relocating or downsizing, if necessary. Be sure to consider factors that may be unique to your situation, such as significant debt payments or prospects for high healthcare costs.

Asset allocation is a key element in your investment strategy with a potentially powerful effect on both risk and reward. Use SmartAsset's Asset Allocation Calculator to help you tailor your approach to your particular needs.

Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

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