“Can I Retire at 63 with $1 Million?” - A Real Client Example
The following client example is specific to one individual and should not be taken as general financial advice.
Congrats! You did the hard part. You saved and deferred into your retirement accounts for many years with hopes of hanging up your career and having control over your time. You have nothing but time to spend traveling, with family, devoted to community and of course, to relax!
In this piece, I will walk you through a real-life client example of “Janice” (not her real name), a client of mine with $1,000,000 in her IRA who hoped to retire at 63.
I’ll cover how we helped her map out of her retirement income, build a customized investment portfolio, and utilize appropriate tax strategies.
Janice’s Retirement Profile
Janice worked incredibly hard over her career, like many Americans. She took advantage of the savings opportunities presented to her through various employers like 401k’s and ESPP’s. She amassed $1 million by the time she reached age 62.
Here’s her financial snapshot:
We then began to discuss what was important for Janice as she looked towards the future and into retirement. What would life look like when she stepped away from work next year at 63? What would she do? Who would she spend her time? How would she keep busy? What did she want to prioritize in retirement?
After having spent a fair amount of time thinking about these questions, we came up with the following priorities for Janice:
Retire at 63
Spend $5,000/mo. in retirement
Budget for Annual Healthcare Expenses in Retirement (Medicare, Co-pays, OOP)
Plan for Long-term Care Need (2 years at $100,000 at age 80, 5% inflation factor)
Spend $10,000 a year traveling
Some additional important details pertaining to Janice’s situation:
Janice’s Rollover IRA: $1,000,000 (all pre-tax)
Janice’s Savings Account: $55,000
Her Home: Fully paid off, worth $750,000
Her Retirement Spend Goal: $5,000/mo. for basic living
Her Travel Goal: $10,000/yr.
Her Social Security: Janice’s Full Retirement Age (FRA) Benefit at age 67 is $3,200. She can delay until age 70 for an additional ~8% per year increase to her FRA benefit.
Step 1: Initial Retirement Assessment
After first discussing Janice’s plan for exiting the workforce and her dream retirement, we began Janice’s retirement evaluation by conducting a basic “Monte Carlo simulation”, a statistical technique that examines the probability of a successful retirement by running 1,000 potential scenarios based on various investment returns, inflation trends, and projected expenses. This test looks at how many of these 1,000 individual iterations leaves Janice with money leftover at her age 95.
Initially, the analysis revealed that if Janice retired at 63, she had just a 29% probability of success. In other words, just 290/1000 individual trials left Janice with money at the age of 95. We began to look at what adjustments were needed to make this number higher and give us more confidence about the solidity of her plan.
Step 2: Adjusting Investment Portfolio
Janice has been a “set-it-and-forget-it” investor. Meaning that she bought into one fund and typically didn’t change it. She had selected a 2025 target date fund that matched her retirement date. As we moved closer to 2025, the fund become more and more conservative with the fund currently sitting at a mix of 50% stocks and 50% bonds.
Given that Janice’s retirement could last 30 years, this cautious approach exposed her to inflation risk, which could diminish his purchasing power over time. Janice also was okay with taking a bit more investment risk because she was not needing to access a ton of money every month from her portfolio after accounting for social security. This led her to be more comfortable with increasing her allocation to stocks in the portfolio.
Revised Investment Strategy:
Adjusted to a 70/30 Portfolio: Increasing equity exposure to 70% provided greater growth potential, ensuring Janice’s assets could better keep pace with inflation.
Matched Risk Tolerance: Janice was comfortable taking on more risk but was unaware of her conservative allocation in the target date fund, so we realigned her investments to better suit her long-term objectives.
This strategic shift raised her retirement success probability to 43%—a notable improvement.
Step 3: Delaying Retirement? (Not a negative!)
After discussing a number of options, we considered postponing retirement until age 65. Janice had decided that it was more important for her to only have to retire once rather than run the risk of running out of money. She also came to terms with the fact that she still enjoyed the work she was doing.
This shift boosted her probability of success to 71%, demonstrating how a few additional working years can significantly improve financial stability in retirement.
Step 4: Strategic Timing for Social Security
Determining the right time to claim Social Security is crucial. For retirees with other financial resources, delaying benefits can lead to a substantially higher monthly payout. In Janice’s case:
Claiming at 62: Reduced monthly benefit.
Claiming at 65: Higher monthly benefit, though still below her full retirement amount.
Claiming at 67 (Full Retirement Age): Entitled to 100% of her primary insured amount.
Claiming at 70: Maximum possible monthly benefit (Additional ~8%/yr caps out at 70) .
Ultimately, Janice decided to begin benefits at age 67. She could have waited until age 70 to receive a higher benefit, but didn’t want to have to bet on her longevity surpassing age 81 in order to receive more benefits from having waited until age 70.
Step 5: Adapting to Retirement Spending Patterns
Many retirees assume their expenses will increase at a steady rate over time.
However, in practice, we often see that spending resembles more of a smile pattern as we move throughout the three stages of retirement.This is referred to as the “Retirement Spending Smile” strategy:
Early Years (Active): Higher spending on travel and leisure during the first decade of retirement.
Middle Years (Going Strong but Slowing): More moderate spending as activity levels decline.
Later Years (Staying Put and Ailing): Increased healthcare and potential long-term care costs.
By structuring Janice’s budget around these phases, we aligned her financial plan with her expected lifestyle needs, improving her probability of success to 89%.
Step 6: Tax-Efficient Withdrawals and Asset Allocation
Once Janice enters retirement at age 65, the order and location of withdrawals becomes increasingly important to minimize her lifetime taxes and build maximum long-term wealth.
Optimized Asset Location:
Stocks in Roth IRA: Since Roth IRA withdrawals are tax-free, we allocated growth-oriented assets to maximize tax-free compounding.
Bonds in Traditional IRA: Holding more conservative assets in the Traditional IRA reduced the tax impact of required minimum distributions (RMDs).
Strategic Withdrawal Order:
Traditional IRA First: By withdrawing from her Rollover IRA initially, Janice allowed her Roth IRA to continue growing tax-free.
Roth IRA Later: Once the Traditional IRA was depleted, she could switch to tax-free Roth withdrawals, further extending her portfolio’s longevity.
Step 7: Evaluating Roth Conversions
This is a big one, especially here! Due to the fact of Janice having all of her assets in pre-tax accounts, she is facing the reality of large required minimum distributions (RMDs) in her 70s.
Roth conversions can be a valuable tool for reducing future RMDs, overall taxes paid in retirement and allowing tax-free withdrawals for retirees and their heirs upon inheritance.
We took a look at her income situation now and prior to social security starting at age 67 and RMDs at age 73. Given that Janice is single and has a decent amount of income, her projected marginal tax rate isn’t expected to fluctuate much in retirement, so we opted not to execute any Roth conversions for now.
However, we will continue to monitor this as things change throughout the years.
Key Lessons from Janice’s Retirement Plan
Janice’s plan highlights how targeted financial planning can make a big difference. Through a combination of strategic adjustments, his probability of success increased from 29% to 89%. Here’s what made the difference:
Investment Allocation: A shift to a 70/30 portfolio increased potential growth while aligning with Janice’s risk tolerance.
Retirement Timing: Delaying until 65 helped reduce spend burden on portfolio, lower pre-65 healthcare expenses, and boost Social Security benefits at age 67.
Spending Strategy: The Retirement Spending Smile allowed for a more realistic spending trajectory that in this case.
Tax-Efficient Asset Allocation: Placing growth assets in a Roth IRA and bonds in a Traditional IRA minimized future tax burdens.
Withdrawal Sequence: Drawing from tax-deferred accounts first and then tax-free accounts to optimize tax efficiency of investments.
These refinements not only brought Janice closer to her ideal retirement but also underscored the importance of a personalized, well-structured financial plan.
Now I know, that was A LOT!
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