Personal Finance

With $1.3 million in a 401(k) and $4 million of real estate - can we afford to retire next year?

Christy Bieber

Published: January 20, 2025 2:09 pm

A reader wrote to 24/7 Wall St. recently to ask if he was ready to retire or not. This is an important decision that requires careful consideration of both savings and projected spending levels.

Here are the details the reader provided, along with some tips on how he can decide if the time has come to leave his job and start enjoying the retiree life. 

Start with the numbers

When deciding whether it’s time to retire, it’s important to look closely at the numbers. Here are the details:

• The reader is 63 and his wife will be 64
• The couple needs an income of $140,000 annually to retire comfortably
• He has $1.3 million in a 401(k) and $50,000 in a Roth IRA
• The reader has a $2,700 monthly pension 
• The couple has two homes valued at $2 million each and has a $900K mortgage
• His wife plans to collect Social Security at 64 and he plans to collect at 66
• He anticipates living until 85 and his wife anticipates living until 93
• The couple has long-term care insurance

So, the question is whether he has the money he needs. He says that amount is $140K, so hopefully the reader has taken into account:

• The costs of maintaining two expensive properties, including a $900K mortgage plus property taxes, insurance, and ongoing repair and maintenance
• Expensive private health insurance for him and his wife until they turn 65 and become eligible for Medicare

If he hasn’t considered these costs,  his income needs could actually be much higher. But, let’s assume that he has factored these expenses in. Then, the question becomes whether he can produce this amount from his different income sources. 

Can the reader produce $140K in retirement income?

So, can the reader produce $140K in income comfortably without risking running out of money?  He has a pension of $2,700 per month, which will provide $32,400 in annual income. He also has $1.35 million in retirement accounts. Assuming he maintains a safe 3.7% withdrawal rate, his $1.35 million nest egg would provide $49,950. 

When you add those together, the reader has $82,350. He falls $57,650 short of his goal. Unless the combined Social Security benefits from the reader and his wife will cover that amount, he isn’t ready to retire at his current spending levels.

Since he isn’t planning to claim Social Security for a while, and since the average benefit is just $1,976, it’s unlikely these benefits alone can make up the shortfall. That means the OP is going to have to choose to either:

• Keep working for longer to save and invest more
• Sell one of the properties

Selling a $2 million home would not only give him a ton more liquid assets to invest, but it would likely also lower his expenses considerably.

Assuming he walked away with $1.86 million after fees and expenses from the sale, the proceeds could be invested and make it possible for his savings to generate another $68,820 in annual income. He’d have more than enough to cover his spending needs at that point.  Alternatively, if he didn’t want to sell, he could explore the possibility of a reverse mortgage but those are often a bad deal with lots of fees. 

Ultimately, when you’re considering retiring, it’s not your total net worth that matters — it’s how much income your assets can produce. Owning a lot of expensive real estate that you aren’t selling or renting out is a liability when it comes to retirement rather than an asset, and you may not be able to sustain that into your later years when the paychecks stop unless you’ve saved an impressive sum.