I Have $500k in a Roth IRA, and Will Receive a Combined $2,000 a Month From a Pension and Social Security. Can I Retire at 62?

Figuring out when you can afford to retire often comes down to determining whether your assets will produce enough annual income to support your lifestyle and spending needs.

With $500,000 in a Roth IRA and $2,000 in combined monthly Social Security and pension payments, you may be able to afford to retire at age 62. However, that will mean living on approximately $44,000 per year. Some retirees may be satisfied with this level of income, but it may not support you adequately if you plan to do a lot of traveling or live in a high-cost area.

Before making the decision to stop working at 62, you’ll also need to develop a plan for paying for health insurance since you won’t be eligible for Medicare until age 65.

Deciding whether you can retire by a certain age involves comparing your estimated sources of retirement income with your estimated expenses in retirement. Here’s a table showing what your hypothetical income sources would look like in your first year of retirement:

Four percent is widely regarded as a safe withdrawal rate. That means, according to long-term models using a conservatively invested portfolio, you can likely withdraw 4% of your Roth IRA balance in the first year of your retirement. You could then adjust your subsequent withdrawals to account for inflation, and not run out of money for at least 30 years. If you withdraw $20,000 the first year and inflation is running at 3% annually, you would withdraw $20,600 in the second year, $21,218 the following year and so on.

The 4% rule is a guideline rather than a hard-and-fast rule. It’s a static withdrawal rate so it doesn’t account for rising or falling spending needs.

If you need your money to last longer than 30 years, you could withdraw less in the early years and potentially extend the longevity of your portfolio. And if need to withdraw more than 4%, you could choose to invest more aggressively to boost your investment return, providing a cushion in case markets slump or face an unexpected need.

According to the Bureau of Labor Statistics, the average person between 55 and 64 years old earned around $65,200 per year in 2023. Based on some retirement planning guidelines, a retiree typically needs around 75% of their pre-retirement income to fund a retirement lifestyle similar to the one they enjoyed while working.

With these figures, we can estimate that you would need around $48,900 in annual retirement income to fund a lifestyle similar to the one you had while working. Here is a table showing the figures:

Based on the data above, your estimated retirement expenses of $48,900 would be $4,900 more than your estimated retirement income of $44,000. This doesn’t necessarily mean you can’t retire at 62, however. The guideline that retirement expenses will be 75% of pre-retirement income is not cast in stone. Some advisors suggest you can live comfortably on as little as 55% of pre-retirement income. Assuming you are an average earner according to the Bureau of Labor Statistics data, this suggests your retirement expenses could be only $35,860 per year.

If you need to, there are several specific moves you can make to either reduce your retirement expenses, increase your retirement income or both. For instance, you could relocate in retirement to a less costly city or even to another country. To generate more income, you may be able to work part-time in retirement.

You might consider delaying your retirement. If you wait until you are eligible for Medicare at 65, for example, you won’t have to pay for private health insurance. Another benefit of delaying retirement is that your Social Security benefit increases. Your benefit at 62 is just 70% of your benefit at full retirement age, which for many people is age 67. In your case, waiting five years to claim would increase your monthly benefit.

Waiting to retire would also gives your Roth IRA more time to grow. If your Roth portfolio earned 4% per year for five years, it would grow to approximately $608,000. Using the 4% rule, this amount would support a first-year withdrawal of around $24,300 instead of $20,000.

While a $500,000 Roth IRA and $2,000 a month in Social Security and pension benefits might support some retirees, it may not allow for the lifestyle that you have in mind. Adjusting your retirement expenses or income is one way to address this. Waiting a few years to become eligible for Medicare, qualify for full Social Security benefit and let your Roth IRA grow more is another approach that would give you a financial larger cushion in retirement.

• Social Security plays an important role in most people’s retirement income plans. Deciding when to claim your benefits can have a significant impact on your finances for the rest of your life, since claiming at age 62 will reduce your lifetime benefits by up to 30%. Likewise, delaying Social Security until age 70 can increase your benefits by up to 32%. SmartAsset’s Social Security calculator can help you estimate how much your benefits may be based on when you plan to claim them.
• There is more to choosing a retirement age than picking a date. A financial advisor can help you evaluate your income sources and spending plans so you can make the best decision possible. 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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