How Do I Cover $3,000 in Monthly Living Expenses? I’m 58 With $700k in Retirement Savings, But I Won’t Collect Social Security for 7 Years

I’m 58 and I have $700,000 in 401(k)s and IRAs. I have no credit card debt, no auto loan payments and no student loans. I sold my home in California and paid cash for a house in Texas, so I have no mortgage. I’m retired military and bring in about $2,200 per month after taxes. My living expenses are $3,000 per month including property taxes. How can I pay all living expenses without working in my situation? I won’t see Social Security for seven years.

– Derick

It sounds to me like you have done a fantastic job of saving and putting yourself in a position to support your needs throughout retirement, even in the years before Social Security. However, since you aren’t yet eligible to make penalty-free withdrawals from your retirement accounts, you’ll need to think about the best way to cover your monthly cashflow needs until you reach age 59.5. (And if you need more help with your plan for retirement, consider speaking with a financial advisor.)

Covering the Deficit

Your monthly take-home pay from the military ($2,200) and monthly living expenses ($3,000) means you have a deficit of $800 per month that you have to cover through a combination of your savings and eventually Social Security. That comes out to $9,600 per year.

For the time being, let’s ignore Social Security since you won’t be collecting it for a few years. We’ll come back to it later, though.

The 4% rule says that you can withdraw 4% of a balanced retirement portfolio every year with little risk of ever running out of money. In fact, you may end up with more money than you started with if depending on how your investments perform.

If we apply the 4% rule to the $700,000 you have in your retirement accounts, it says that you can safely withdraw $28,000 in your first year of retirement. The rule also calls on you to adjust your subsequent withdrawals for inflation each year.

Now, it’s important to note that the 4% rule is just a rule of thumb. There are…