Dear Penny: Can We Afford to Retire on Just $65K a Year?

Dear Penny,

I am disabled and my husband is our wage earner. We are both near age 70. We receive Social Security and some monthly pension payments that aren’t terribly large. 

With his current income, we bring in about $99,000 before taxes. Without his income, we would bring in about $65,000 a year. We have a mortgage of $1,310 per month, plus a lease car payment and one credit card we are working to pay off. We need to account for monthly living expenses as well. 

We do have some retirement funds we will need to start taking in the next few years, but we are trying to hold off on that if possible. Those funds are not substantial — maybe around $160,000. We are not in a position to move, and I just don't see a way for us to have my husband retire. 

I am so anxious about this and need some guidance. Can you help?

-P.

Dear P.,

I get that it’s scary when you think about your income falling by a third. But with retirement, there’s only so much control you have. Sure, you can plan to work forever, but few of us will actually be able to do so.

You need to accept that your husband’s retirement is inevitable, though hopefully you’ll have some flexibility on the timeline. The real question is how will you survive when your annual income is reduced by $34,000 before taxes.

One thing I’m curious about here is whether your husband wants to retire. If so, does he share your worries? If the two of you aren’t on the same page here — as in, you both would like him to retire within a certain time frame — I doubt anything I say will be helpful. You’re both going to have to sacrifice to make this happen.

You know your spending better than I do. Do you spend virtually every cent of your current $99,000 income? If so, you don’t need me to tell you what a challenge you’re in for.

Still, let’s put this in perspective. About a quarter of retirees depend on their Social Security benefits for at least 90% of their incomes. (Of course, that’s not a retirement I’d recommend to anyone who can avoid it.)

For couples who each receive the average monthly benefit in 2020, that amounts to just over $3,000 a month. You’re looking at about $5,500 of guaranteed income between your Social Security and pensions — and that’s before you dip into your retirement savings. So while this may not buy you your dream retirement, a lot of seniors out there are certainly making do with less.

I mostly like your plan to delay tapping your retirement funds as long as possible, but I think you should withdraw whatever money you need to pay off the credit card. Since you’re both over age 59 ½, you won’t pay an early withdrawal penalty, though you’ll owe taxes if it’s a non-Roth account. Given how high credit card interest rates are, that debt is probably costing you far more in interest than you’re earning on it.

Unfortunately, there typically aren’t any great options for getting out of a car lease. So please promise me that the last lease payment you make on this car will be your last lease payment ever. When this lease is up, consider a small withdrawal from your retirement money to secure yourself a no-frills vehicle, whether you’re taking the purchase option on your current car or buying a new-to-you used ride. The goal here is to get your monthly expenses as low as possible.

Beyond all that, could you do a test run where you try to live on $5,500 a month? That’s the only way you’ll figure out how much of a shortfall you’re facing. Once you’ve tried life on a retirement budget, you can start planning a withdrawal strategy.

The reality is that you’ll face some tough choices here. What’s even harder is that these are cuts you’ll have to make for life. But you should approach this as something you need to do. You can’t expect your husband to be able to work forever.

Some people do amass the kind of assets that allow for separate summer and winter homes and lazy days at the country country club in retirement. But they’re the exception by far. Fortunately, you don’t need these things to be happy in retirement.

Focus on what you’re gaining, along with what you’re giving  up. You’ll be giving up money, but you’re getting more time together. At nearly 70, your husband has earned the right to retire. Getting there is doable, but it will require you both to work together.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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