Ask an Advisor: How Much Can I Safely Withdraw at Age 63? I Have $1 Million Plus $75k in Cash and Gold and a Small Pension

I am a 60-year-old male and I want to retire when I turn 63 and move to Colombia. My house will be paid off in one year and I plan on transferring the deed to my son. When I retire, I will have a $400-per-month pension, an estimated Social Security benefit of $2,700 per month, and as of now, my 401(k) balance is a little over $1 million. I am averaging a 7% return on my 401(k), but next year, I have plans on moving all of that money into more conservative choices, so my return will no longer be 7%. I also have $50,000 in a high yield savings account and $25,000 in gold bullion.

How much do you think I could safely withdraw per month for a good retirement with occasional travel. No one in my family generally lives past 70. I still work full time and I am in good health. Could you also factor in a 25% drop in my monthly Social Security? I cannot believe Congress would let the trust funds go insolvent, but I want to be prepared. – Charlie D

Many people with similar income sources might be well positioned for retirement, but as with most financial decisions, the right answer depends on your individual circumstances. We can get a good idea of the income you can expect from your assets, but you’ll need to compare that estimate against your expected spending to know if you’re on track.

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Your Retirement Income

Let’s separate your guaranteed income sources from what you might expect from your portfolio withdrawals. 

Guaranteed Income

You mentioned two guaranteed income sources: a $400 monthly pension and Social Security benefits of $2,7000 per month (I’m not sure what age you plan to claim, but I’ll assume that this is what your benefit will be at age 63). This provides you with a $3,100 floor, or about $2,425 if you include the 25% reduction.

Portfolio Withdrawals

Now, let’s look at withdrawals from your 401(k). There are many approaches you can take and I encourage you to explore them so you can choose a method that fits you best. The 4% rule ¹ is a good starting point to get a ballpark idea of what you might be able to withdraw.

This rule of thumb suggests you can withdraw about 4% of your portfolio in the first year of retirement with subsequent withdrawals adjusted for inflation each year. Doing so, the rule suggests, gives you a high probability of your portfolio lasting at least 30 years. That would mean withdrawing about $40,000 in your first year of retirement, or roughly $3,300 per month.

Even if this is the withdrawal approach you choose, there are reasons to modify it. Perhaps the biggest reason is your longevity. If you plan to retire at 63 and your family history suggests a shorter life expectancy of around 70, you may not need that money to last 30 years. Your withdrawal window might be closer to 10 years. (Remember, a financial advisor can help you determine a sustainable withdrawal rate that aligns with your income needs, lifestyle goals and long-term portfolio health.)

In that case, you could withdraw a larger percentage, around 6% or even more, without a significant risk of running out of money over the shorter time horizon. That would amount to roughly $60,000 per year compared to $40,000 under a 4% withdrawal rate.

When we combine these withdrawals with your guaranteed income, your total income would be around $90,000 in year 1 of retirement. Most people would call that a comfortable range for a modest retirement lifestyle, even allowing for occasional travel. Also, consider that you may be in Colombia where your cost of living should be substantially lower than in the U.S.

Investment Considerations

You mentioned shifting your 401(k) to more conservative investments next year. That is sensible as you near retirement depending on your starting point. The trade-off is that your expected return will drop. Just make sure your asset allocation still supports your plan and your withdrawal rate aligns with that lower expected return.

In general, an equity allocation between 50% and 70% works well for many retirees, though the right mix depends on individual comfort level and risk tolerance. (And if you have questions about what your asset allocation should be in retirement, speak with a financial advisor.)

Other Things to Consider

Deeding your home to your son is generous, but talk to a tax professional first. He’ll inherit your cost basis, which may create a future tax burden if he sells it. You might consider just letting him inherit it instead. This would give him a step-up in basis and may save him money in the long run.

Medicare won’t cover you outside the U.S., so be sure to include international health insurance in your budget. Also, consider that your pension may not adjust for inflation. This isn’t a huge deal because it’s a smaller income stream, but be sure to factor this into your plan for how much you’ll withdraw from your 401(k).

Finally, the approximately $75,000 you have in cash and gold can serve as a safety buffer. In the event of a significant market downturn you could spend from this pool of assets instead of your portfolio. If this can cover one to two years of living expenses then I’d say you are in a very secure position.

(And if you need additional help reviewing your financial plan for retirement, connect with a financial advisor.)

Bottom Line

Many people in your position would be well-prepared for retirement given that you are (soon to be) debt-free, have a healthy portfolio and multiple income sources. There are plenty of people living happy lives in retirement on less. However, there are also plenty of people who would be miserable living on that in retirement. You must compare your retirement income sources against your expected expenses to know if it will work for you. 

Retirement Planning Tips

• Whether you’re still saving for retirement or you’ve already begun spending down your nest egg, a financial advisor can help you establish a plan for retirement income and withdrawals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Financial markets, tax laws and personal goals change over time. Reviewing your retirement plan each year allows you to make adjustments to contributions, investments and withdrawal strategies as needed to stay on track.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.

Photo credit: Photo courtesy of Brandon Renfro, ©iStock.com/Jacob Wackerhausen