Can a 64-Year-Old Retire on $1.6 Million and 'Shaky' Social Security?

Dear Wealth Wise, I'm 64 (almost 65), work full-time, and I'm tired of being told to use AI at my job. Can I retire on $1.6 million if my yearly spending needs are roughly $90K and Social Security will pay $3,500 a month (if benefits remain fully payable)? — Seeking Analog

Dear Seeking Analog — Over the past year or so, AI integration has picked up tremendously. And while some folks are embracing it, for others, it’s quickly becoming a sore spot. Earlier this year, Talker Research found that 54% of those polled are "getting tired of hearing" about AI, and 30% view it negatively.

Here, our almost-65-year-old reader has clearly had enough of AI and is looking to retire because of it. But is he being impulsive? And does the math work out in his favor? Here’s what our experts say.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

The numbers may work, but they need to be tested

Our reader’s estimated $42,000 annual Social Security benefit should cover roughly half of their annual spending needs. The remaining $48,000 will need to come out of savings.

Using the popular 4% rule, $1.6 million could support $64,000 in annual withdrawals. Since our reader only needs $48,000, they have a pretty good buffer, says Bryan Kuderna, CFP and Founder of Kuderna Financial Team. However, he cautions, the often-overlooked factors are taxes and Medicare premiums.

"Spending $90,000 annually is obviously $90,000 of after-tax money," Kuderna explains. "At least a portion of their Social Security benefit [may] be taxable. Then it will be reduced by Medicare premiums, which can be around $200 monthly to much higher depending on their modified adjusted gross income. To have a rough estimate, they [should] assume a $2,500 monthly net Social Security check."

In that case, Kuderna explains, our reader could be looking at a gap, especially if their $1.6 million is sitting in traditional retirement accounts that are subject to taxes on withdrawals. If most of that money is in a Roth account, the math could work, he says. But that "if" needs to be addressed before our reader dives into retirement.

Of course, taxes will vary heavily depending on whether the reader files jointly or as a single taxpayer. Our reader should also factor inflation into his plan, since that $90,000 per year will be worth much less over time.

"Shaky" Social Security is the wild card factor

Our reader suggested Social Security benefits may not be fully payable. They’re not making that up. The Social Security Trustees recently reported that the program could face broad benefit cuts by late 2032 if Congress doesn’t find a way to shore up its finances sooner.

Caleb Moyer, CFP, CFA, EA, and owner of Moyer Tax Services, says Social Security’s future is worth considering, but it shouldn’t necessarily shape a retirement plan.

"I wouldn't tell someone to keep working indefinitely because they're worried about Social Security cuts," Moyer says. "Instead, I would build a retirement plan that shows what happens if those cuts actually occur."

As Moyer explains, if Social Security benefits are reduced by 25%, our reader would receive $31,500 annually instead of $42,000. (Social Security’s Trustees project a 22% cut, so this builds in even more of a buffer.) That means they would need to withdraw $58,500 from their portfolio each year to maintain their $90,000 spending level.

"Their initial withdrawal rate would increase from 3% to approximately 3.66%," Moyer says.

"That's a meaningful difference, but it doesn't automatically mean retirement is off the table."

This especially holds true if our reader’s $1.6 million is housed entirely in a Roth account. In that case, our reader may not even face taxes on their Social Security benefits.

The formula that determines whether taxes on benefits apply accounts for modified adjusted gross income (MAGI) and 50% of one’s annual benefit. Roth withdrawals aren’t part of MAGI, so even without a cut to Social Security, our reader would still be in the clear on benefit taxation, assuming they have no other income.

Of course, Social Security cuts aren’t the only thing to stress test.

"I would also want to see what happens if they experience poor investment returns early in retirement or live well into their 90s,” Moyer says. "The short answer is they should be able to retire, but it would be wise to work with a CFP to formulate a distribution strategy."

The right investment mix is key

If you’re going to retire at roughly 65 on $1.6 million, investing that money carefully is key, says Moyer.

"One of the biggest risks for someone retiring at 65 isn't necessarily running out of money because they spent too much," he says. "It's being forced to sell investments after the market has fallen significantly, particularly during the first few years of retirement."

That’s why Moyer recommends what he calls the 3-5-7 plan.

"We look at how much someone expects to withdraw from their investments over the first three, five, or seven years of retirement, after accounting for Social Security and other income," he explains. "We then consider setting aside enough money in fixed income … with maturities aligned to their expected withdrawals to cover those years."

Addressing the burnout factor

"If someone has spent decades working and saving," Moyer says, "and their retirement plan shows they can reasonably support their desired lifestyle, there's a real argument for allowing themselves to enjoy the money they've accumulated."

But, he says, "That doesn't mean they need to make an impulsive decision and retire tomorrow. I would encourage them to build a financial plan, understand the potential risks, and determine what their retirement would actually look like."

The reader's birthday is also important. If he burns out and quits with six months to go before turning 65 (when he can start receiving Medicare), he will need to pay out of pocket for private health insurance (ACA). That can easily cost $800–$1,200 a month and derail his $90k year-one budget. If he is only one month away, those healthcare expenses are easier to manage.

David Talley, CFP, ChFC, EA, founder and lead advisor at Talley Wealth, says he understands that AI burnout is real. However, he says, retirement doesn't have to be one big jump.

"A lot of the people I work with step down in stages — maybe part-time, maybe consulting, maybe something totally different they actually enjoy," he says. "Even a little income in those first few years takes pressure off the portfolio right when it matters most."

At the same time, working part-time offers a chance to explore new activities or hobbies and ease the transition. That way, you’re not running away from burnout only to eventually replace it with boredom.

Read More

• I'm 62 and Want to Keep Working, but I Hate Using AI. Can't I Just Do My Job?
• You’ve Mastered Asset Allocation — Now It’s Time for Asset Location
• How the AI Entry-Level Freeze Is Delaying Retirement
• I'm 60 With $4 Million: Can I Have a Luxury Retirement?