Getting Close to Retirement
Near Retirement
Fiona the Pharmacist is nearing retirement from the Job Store for Pharmacists.
Enjoyment
Fiona is a wonderful pharmacist and although she will miss her co-workers and patients dearly, she is ready to enjoy retirement.
Savings
Fiona the Pharmacist has been financially frugal and saved aggressively in her retirement plan and also saved some money by investing in mutual funds.
The Three T's
She is looking forward to retirement and the Three T’s: Travel, Tennis, and Time with family!
Let’s look in on Fiona’s finances
Fiona's Finance
- Assets Value
- 401k : $1,300,000
- Mutual Funds: $200,000
- Checking/Savings: $100,000
- Mortgage: $0
Budget
Fiona the Pharmacist is financially fit. She doesn’t have any debt, none. Fiona feels she can live comfortably on $4,000/ month ($48,000/year) BUT also believes her travel and tennis budget will be around $2,000/month ($24,000/year).
Fiona needs $6,000/month ($72,000/year).
More Facts
Here are a couple of more facts about our Pharmacist Friend Fiona.
About Fiona
- Family: Children are financially independent
- Age: 62
- Projected Social Security at 62: $24,000
- Projected Social Security at 67: $35,000
Good Shape
Fiona is in really good shape. She has saved money, paid off her house and importantly, has an emergency reserve fund already in place. The two big income questions are:
- When does Fionna start taking social security?
- How much money can Fionna withdraw from her 401(k) each year.
Taking Social Security at 62
Fiona has crunched the numbers and believes she needs a total of $6,000 a month to live comfortably during her retirement.
Let’s see what might happen if Fiona begins taking social security at age 62.
Age 62
- Annual Social Security: $24,000
- Annual 401k & Mutual Funds Withdraw @ 4%: $60,000
- Total Annual Income: $84,000
Taking Social Security at 67
Let’s see what might happen if Fiona waits and takes social security at age 67 and withdraws aggressively from her 401(k) to cover social security shortfall for the first five years.
Age 62
- Annual Social Security: $0
- Annual 401k & Mutual Funds Withdraw @ 5.6%: $84,000
- Total Annual Income: $84,000
Age 67
- Annual Social Security: $35,000
- Annual 401k & Mutual Funds Withdraw @ 3.3%: $49,000
- Total Annual Income: $84,000
Lots to digest here
Fiona will clearly benefit by waiting to take her social security income. Remember, every year that Fiona the Pharmacist waits, her social security benefit will increase by 8%. So, if Fiona can hold off taking social security for five years, she can increase her annual social security income by $9,000/year.
At the same time though, Fiona is really counting on her 401(k) for early retirement income. In the world of personal finance, Fionna is taking on a significant amount of “market risk.” Market risk is the risk associated with Fiona’s investments losing money. Again, we need to remember that markets go up and down and Fiona could be in a real tough situation if the market goes down significantly right when she begins taking income from her retirement plan.
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