Can I Retire in Five Years at 70 With $250k in an IRA and $3,000 per Month in Social Security?

If you're in your mid-60s and still working, it may be time to start seriously planning for retirement. That doesn't mean you need to leave work immediately, but retirement is likely on the horizon.

Imagine you're 65 years old, you have $250,000 in an IRA and expect to receive $3,000 per month from Social Security. Can you retire at age 70? Depending on your personal circumstances and risk tolerance, This could be enough money to generate some financial security, although much of your flexibility would depend on how you manage the IRA for the next five years.

If you need additional help planning for retirement, consider speaking with a financial advisor.

How To Plan For Retirement In 5 Years

If you plan to retire in five years and have $250,000 in your portfolio, how you manage your IRA will go a long way to determining what kind of retirement you can expect. Five years isn't a lot of time, but it's still enough time for some significant growth. Consider these three hypothetical scenarios:

Investing in Bonds

Currently, investment-grade bonds are paying an average 5.6% yield. If you invest your whole IRA into bonds right now, you could expect to retire with about $328,291. Since bonds issue a rate of return backed by the credit of the underlying institution, your odds of volatility or loss are low.

Invest in the S&P 500

Investing all of your assets in an S&P 500 index fund could produce higher returns than bonds, but it’s a riskier option. But based on the market's approximate average rate of return (10%), putting everything into the stock market could potentially leave you with $402,628 by age 70. And if you had lots of time for the market's fluctuations to even out, this might be an excellent plan. But five years is likely too short of a window to justify investing 100% in equities.

Build a 60/40 Portfio

Conventional wisdom is to split your assets into a mix of stocks and bonds. By your 60s, this is often either a return-heavy portfolio of 60% stocks and 40% bonds or a safety-heavy portfolio of 20% stocks and 80% bonds. Historically, a 60/40 portfolio has grown at around 8.77% per year, according to Vanguard. While past performance doesn’t guarantee future results, if we assume your IRA grows at 8.77% per year over the next five years, it would be worth about $380,615 by age 70.

None of these strategies will transform your financial situation, but a strategic mix of stocks and bonds could provide you with a combination of growth and safety. A financial advisor can potentially help you find an asset allocation aligned with your risk tolerance and goals.

Income and Withdrawals

Next, you’ll want to assess what your income needs will be in retirement.

If you retire at 70, you will max out your potential Social Security benefits. While Social Security won’t be enough on its own, $3,000 per month in benefits is a good start.

Then, you’ll need to determine how much you can withdraw from your IRA. This is more complicated. The two issues here are:

• Investments going into retirement

• Investments while in retirement

Basically, how do you plan to invest your IRA in the five years before retirement, and, as a result, how much money will you have in your portfolio at age 70?

Then, once you do retire, how will you continue investing? What kind of growth can you expect during retirement?

While we don't have enough space to explore all possible options, let's assume you use the 60/40 split over the next five years. This would leave you with $380,615 in your IRA by the time you retire.

If you keep your 60/40 asset allocation in place throughout retirement, you could potentially afford to withdraw about $2,000 per month after taxes at age 70. You could then increase your withdrawals for inflation in each subsequent year and stretch your IRA for nearly 25 years. Just remember, these figures assume your portfolio would continue to average 8.77% per year.

When combining your Social Security benefits and IRA withdrawals, you’d have a total retirement income of around $5,000 per month in year 1. However, this approach would leave you exposed to market volatility, as 60% of your portfolio would still be invested in equities. Keep in mind that you may want to rebalance your portfolio as you get older, shifting a larger percentage of your assets into bonds.

As you can see, building an income plan for retirement can be complicated, but a financial advisor can help. If you’re looking for a fiduciary advisor, this tool can help you match with one.

Bottom Line

Can you afford to retire at age 70 with $250,000 in an IRA and $3,000 in monthly Social Security income? It depends on several factors, but the most important are how you invest in this portfolio and how much you need to live on. It’s possible that these assets could produce $5,000 in your first year of retirement and keep pace with inflation thereafter.

Retirement Planning Tips

• As you can see, Social Security can play a major role in your retirement income plan. SmartAsset’s Social Security calculator can help you estimate how much your benefits may be depending on when you plan to claim them.

• 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.

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