I’m 63 With a $1.6 Million Net Worth and $4,500 in Monthly Expenses. Can I Retire Now?

With a $1.6 million net worth and $4,500 in monthly expenses, retiring at 63 is a possibility, but quite a bit of that depends on your circumstances. The income your net worth will generate depends first on how much of it is in the form of liquid assets. Your personal risk tolerance is another key factor that will help determine how much your portfolio is likely to earn, as well as how much of the principal you are comfortable withdrawing to pay living expenses. Additional elements of importance include how much and what kind of other income you have, your tax situation and your life expectancy.

Using the 4% withdrawal rule of thumb, you could withdraw $64,000 the first year, adjusting it upward for inflation annually thereafter. This rate is equivalent to $5,333 a monthly, which is technically above your monthly expenses.

Now, let’s look at the risks of going this route. To begin with, many advisors note that a 4% withdrawal rate is not always going to work in all situations. While it’s designed to let a conservatively invested portfolio last at least 30 years under a wide variety of market and economic scenarios, it may not consider all potential negative developments. For instance, what if an era of high inflation, low investment returns or unexpected expenses such as medical costs come into play? That could cause your monthly expenses to skyrocket or your portfolio to be unable to keep up.

Much also depends on how much of your net worth consists of investable, liquid assets that can generate active and accessible income. For instance, what if your $1.6 million net worth includes your paid-off personal residence valued at, say, $400,000. While you’re getting a great deal of value out of the home (this would have it holding a quarter of your net worth’s value), you can’t generate income with it unless you sell or rent it out.

Subtracting the home’s value in this scenario, you would still have $1.2 million, but is any other part of it illiquid? Let’s assume not and it’s all in a combination of cash, CDs, bonds, shares of stocks, mutual funds and retirement accounts. Applying the 4% rule in this situation, you could safely withdraw $48,000 annually or just $4,000 a month, leaving $500 a month in unfunded monthly expenses.

The good news is that if you’re similar to a typical retiree, you will have sources of income other than investments. These could include Social Security benefits, pension benefits, annuity payments or earnings from part-time work.

Social Security is one source of income a large majority of retirees can expect. As of January 2024, the average Social Security benefit was estimated at approximately $1,860, according to the SSA. If you qualify for this average Social Security benefit, then you only need an additional $2,640 from investments or other sources to cover your $4,500 monthly expense. Considering this level of net worth, that should technically be attainable.

On the downside, these simplified analyses don’t include the effects of other factors, such as taxes and other outstanding costs. Both of these can eat up significant portions of your investment earnings before they are available to you.

If your investments don’t seem up to the job of covering $4,500 in monthly expenses, there are number of things you can do. Some options include:

• Delay retirement: If you wait a few more years to retire, your investment portfolio will have time to further grow, plus you’ll delay how many years you’ll personally need to cover. A portfolio of $1.2 million that doesn’t include the value of your hypothetical $400,000 home within your investable assets could increase to nearly $1.4 million over three more years, assuming moderate 5% annual growth.
• Delay Social Security: Each year you delay claiming benefits until age 70 increases your monthly benefit. Claiming at the earliest possible age, which is 62, decreases the benefit by up to 30% compared to what you’d get at full retirement age of 67. After full retirement age, delaying claiming increases your benefit 8% a year until age 70.
• Increase investment income: Safe withdrawal rates are usually calculated using very conservative portfolios of half stocks and half bonds, or even 60-40 allocations. Changing your asset allocation could increase your earnings and allow you to withdraw more, as long as you’re willing to stomach the extra risk.

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three 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.
• To quickly get insight into how much you’ll need to, run your numbers through SmartAsset’s retirement calculator.

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