56-year-old's $1.4M retirement planning

A 56-year-old individual with over $1.4 million saved in retirement accounts is planning to retire within five years, according to a question posed to MarketWatch's Help Me Retire column. The person, who is single and earns $138,000 annually, has a net worth exceeding $2 million when taxable brokerage and savings accounts are included, after deducting outstanding mortgages.

Their primary concern is whether their savings will be sufficient to afford living in high-cost states like California or Massachusetts, or to spend three to six months abroad each year during retirement. They also wish to avoid heavy withdrawals in the first decade or two of retirement for travel or a new home purchase. Furthermore, they are considering their group long-term-care insurance from a former employer, citing ballooning premiums as a reason they might reduce or drop the coverage.

Portfolio and Risk Management

The individual holds multiple traditional and Roth 401(k) plans and other accounts, with the largest portion in a former employer's plan that features ultralow fees. They are in the process of consolidating these into a single brokerage. A key question they raise is how to prepare for market drops just before or after retiring. They ask whether they should view all their accounts as one combined allocation rather than managing each separately.

In response, the MarketWatch column suggests the key is to get organized. It recommends considering a certified financial planner to create a thorough plan. A planner could examine all accounts and investments, help establish a retirement timeline, determine timing strategies, and run multiple scenarios for contingency planning.

Estimating Retirement Costs

The advice column stresses the need to understand future spending to assess if savings are adequate. It suggests researching costs for potential retirement lifestyles, including living abroad or in expensive U.S. locations. Trying out a desired location for a couple of weeks during different seasons is recommended to gauge real expenses.

The 4% rule is cited as a guideline. This rule suggests an initial 4% withdrawal from investments, adjusted for inflation annually, could support a 30-year retirement. Applied to the $1.4 million, this would provide about $56,000 in the first year. Other income, like future Social Security benefits, would later supplement this. The column notes that taxes and inflation must also be factored into these calculations.

Addressing Market Risks

The individual's concern about market downturns near retirement touches on sequence-of-return risk. This is the danger of experiencing portfolio losses when beginning to take distributions, which can significantly impact the longevity of savings. The MarketWatch response acknowledges this is a valid worry but does not provide specific mitigation strategies in the published excerpt. The column invites further discussion in its Facebook community, Retire Better with MarketWatch.