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socrateaser, Attorney
Category: Social Security
Satisfied Customers: 38801
Experience:  retired (mostly)
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When can I retire

Customer Question

when can I retire
Submitted: 1 year ago.
Category: Social Security
Expert:  socrateaser replied 1 year ago.


Pease provide some facts about your situation, and I will try to provide a useful answer.

Customer: replied 1 year ago.
I work as a shift supervisor for CVS Caremark full time and I am wondering when I can retire comfortably
I am 56 years old right now
Expert:  socrateaser replied 1 year ago.

Your question is extremely complex, and the answer depends upon:

1. Your current net worth;

2. Your prospective future net worth;

3. Any private/employer retirement benefits to which you may be entitled;

4. Your estimated Social Security benefits;

5. Your current and prospective health condition; and most important of all

6. Your subjective definition of the term, "comfortably."

The reason why #6 is so important is that each person has a greater or lesser capacity to survive on a certain fraction of their current income during retirement.

Assuming that your definition of "comfortably" means the same income as you currently receive while employed, then you must be able to substitute income while employed with income from investments and (if necessary) asset exhaustion during retirement.

In the current low interest rate environment, secure retirement income is extremely difficult to produce. Long term state general obligation bonds (which were at one time, the staple of a secure retirement) pay at most 3% per year.

Let's say that you currently earn $50,000 per year, gross (approximately $45,000 after federal and state taxes). In retirement you may receive approximately $1,500 per month ($18,000 per year) social security benefits, when you reach full retirement age (typically 66 years). This means you must be able to replace $45,000 minus $18,000 or $27,000 per year via investments.

Let's further assume that you do not want to exhaust any assets, which means that you will live entirely on your income, and not spend any of your asset value. In order to generate $27,000 of income at 3% per annum, you must have a retirement account with at least $900,000 (900,000 X 3% = 27,000).

Very few people who earn $50,000 per year have $900,000 in savings. Moreover, most retirement accounts (traditional IRA or 401(k)) are tax deferred. Which means that taxes must be paid on the income. Consequently, $900,000 is insufficient. Dependent upon the income tax rate in your state, you may need approximately $1.3 million (assuming an effective state and federal tax rate of 30%). This means that you must either accept a substantially lower amount of retirement income, or if you own your home, you can get a reverse mortgage, or purchase an annuity to supplement your income. However, these options mean that there may be nothing left to pass on to descendants at death.

What I've provided here is merely a thumbnail of the sort of financial thinking that's required to determine what you would need to live comfortably in retirement. The real answer is personal to each individual.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

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