Millionaire couple can soon retire

December 02, 2007|By Janet Kidd Stewart | Janet Kidd Stewart,Chicago Tribune

My wife and I are 55 years old. We have $1.3 million saved. ... I would like to retire by year's end. My wife works part time and makes $24,000 per year. We are debt-free. If I retire, I lose my salary of $45,000 and health benefits. We would have to pay out of pocket per month somewhere around $700 to $1,000 for health insurance. I would probably work some kind of part-time job. My wife will probably work another four to five years. Can I retire?

It all depends on how much you'll spend, but many people have retired on far less than seven figures.

Factoring your situation into a computer model developed by Laurence J. Kotlikoff, a Boston University economics professor, it appears that you have the green light to fully retire now, and your wife in four years, even if you both make it to age 100.

You indicated your annual living expenses today are about $40,000, including your estimate of future health insurance costs once you give up the job.

But plugging estimates of your future Social Security benefits, investment gains, federal and state taxes (the reader lives in Baltimore) and other factors into the program, Kotlikoff estimates you'll be able to spend $63,259 annually if you retire now, or $66,061 annually if you retire in five years, with inflation adjustments over time. In both situations, he assumed your wife worked another four years. If you purchase an inflation-indexed annuity at age 65 with the $750,000 in your retirement accounts, you'd be able to spend somewhere in the middle of those two figures, beginning now, Kotlikoff said.

These estimates include your Social Security income but do not factor in a lengthy nursing home stay, he said, so you might investigate purchasing long-term-care insurance. It should be affordable given the gap between this allowable spending rate and your estimated expenses.

Have a retirement question? Write to yourmoney@tribune.com, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, Ill. 60611.

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