Q&A with David Edwards: Should I Wait Until I am 70 Years Old to Retire?

Question: I have just heard that people should forget about retiring until they are 70 years old. Does this only apply to a certain target audience? I am thinking about retiring when I am 60 years old (9 years from now). I have about $2,300,000 in investments split equally between a 401(K) and other investments. My wife and I have always lived well under our means.

Answer: Your age is not necessarily the driver of this decision. A properly allocated portfolio of 70% equities and 30% bonds will deliver a conservative draw of 4% for the rest of your life AND leave a substantial estate. If your current income needs are $92K or less, working just became optional! 

Don't forget Social Security benefits as well. We generally recommend that clients not start drawing SS until age 70. For a typical middle class family, that's about $25-35K per working spouse.  If you don't know for sure, obtain a current statement from www.ssa.gov/myaccount. If you learn, for example, that you'll receive $40K/year staring in ten years, you could actually go to a higher draw rate of 5%/year now, then scale back once you receive benefits.

If you do decide to retire this year, obtain your current draw from taxable (e.g. individual or joint) accounts, postpone drawing against your 401K until 70 1/2 to keep the tax deferred benefit going as long as possible. At that point, you must take Minimum Required Distributions which are taxable at your income rate.  We usually send our clients MRD's directly to their taxable accounts each January 15th, to reload the funds we distribute each month as their draw.

One final option. Most of our clients want to leave an estate. However, for those clients "who want the last check to bounce" we can actually convert part or all of their retirement saving to a fixed income two life annuity. The current annuity distribution for a couple 60 years old is about $9500/month, or $114K/year. For clients that want this approach, we recommend holding off two or three years in expectation of higher interest rates. When you buy a fixed annuity, you lock in current interest rates.