It’s hard to retire early on $1 million

Photo: DeeGolden/

Nearing retirement, Jared and Melody have plans for the future.

The big one is figuring out what their retirement is going to look like. They’re considering a move to Pennsylvania for a lower cost of living, but they’re not sure what price is reasonable for a new home.

Jared is 50 and Melody is 58.

But before they retire, they have to manage their short-term goals.

“We want to pay off student loans, pay for our son’s wedding and graduate school,” said Melody.

The couple has saved $463,500 in 401(k) plans, $357,000 in IRAs, $179 in mutual funds, $64,000 in money markets and $1,000 in a checking account.

Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton, the couple’s situation for

“Like many people approaching retirement, they have short-term, mid-term and long-term goals that need to be addressed,” Hook said. “Unfortunately, these goals tend to conflict with one another such that solving one goal reduces the likelihood that the other goals will be met.”

After seeing this, Hook said, people sometimes are overwhelmed, causing them to not address any of them. As time passes, the goals begin to coagulate.


Hook ran retirement cash flow projection reflecting all of the couple’s goals: paying off student loans, funding a wedding, retirement and a move out-of-state.

As part of the projections, Hook increased the couple’s travel budget in retirement to $10,000 a year.

“Using a projected rate of return on investments of 6 percent, the retirement cash flow report shows that the withdrawals needed to supplement their other income once retired would be too great to ensure that they would not outlive your money if they were to retire at age 64 and 62,” Hook said.

This assumed a life expectancy of age 92 for Jared and 90 for Melody.

In order to solve the shortfall, Hook said, many people tend to want to project a higher rate of return, signaling that they are willing to assume greater risk to get that higher return.

However, this can be dangerous because the rate of return on your investments is largely out of your control, hook said.

“Prolonged periods of historical market underperformance or trying to time the market and being wrong even just once will make the retirement projections unlikely to occur,” he said.

So what does work? for this couple, working longer increases the likelihood of success to age 92 and 90,” Hook said.

One of the keys to a successful retirement is generating enough cash inflows to cover cash outflows throughout retirement, he said.

He said cash inflows can come in different forms. Streams of income such as Social Security, pensions and annuities, which generally cannot be outlived, are among them. Other outflows come from investments, such as dividends, interest, capital gains and principal distributions.

“For people whose retirement cash inflows are not going to come predominantly from streams of income, it is critical that their asset base at the time of retirement be large enough to support potentially increasing cash needs throughout retirement,” Hook said. “Working longer does two very important things: 1) working longer can allow for more savings, and 2) working longer pushes back the date which distributions need to be taken from someone’s asset base allowing the asset base to continue to grow for those extra years.”

That strategy is key for this couple.

Hook said if Jared works until age 67 and Melody until age 65, that would allow them to defer making withdrawals from their investment portfolio until a later age, noting that hopefully, the portfolio will grow during those years.

Even if it does not grow, delaying until a later age still helps because the amount of years that they need to withdraw funds will be fewer. This results in a projected lower withdrawal rate and one that has a greater chance of sustainability, he said.

Bringing in the possibility of downsizing to a home worth $500,000 doesn’t change the scenario. The likelihood of success would be just as great assuming that they retired at age 67 and 65, Hook said.

In conversations with the couple, they asked about what would happen if they retired when Jared is 64 and Melody is 62.

These ages then became the base scenario for the couple’s plan.

“Unfortunately, their cash flow did not allow them to save much money besides the 10 percent of Jared’s salary being put into a 401(k)m,” Hook said. “Melody is not contributing to a retirement plan nor does the cash flow allow for it.”

Hook said their asset base is simply not large enough to support their lifestyle in retirement. They’d run out of money when Jared reached age 85.

But a different scenario, which pushed out their retirement dates to age 67 and 65, allowed their asset base to grow and also for them to save more.

Hook said their cash flow became more positive a few years down the road because the wedding cost and the grad school were paid for, he said.

“Additionally, we implemented a maximum Social Security strategy which had Jared collecting at age 67,” Hook said. “This increased the results to an acceptable age where the projection showed them running out of money at age 90.”

The projections also assumed they would continue to pay the same amount per month on the student loan debt of $24,000.


Hook performed an analysis of their investment portfolio.

Based on the figures they provided, their asset allocation is approximately 60 percent in equities and 40 percent fixed income and cash.

They also have 11 percent of the stock side in international stocks.

Hook recommends they increase the allocation in international stocks to help diversify the equity portion of their portfolio.

“This provides better diversification,” he said. “International investing has not produced nearly the same returns that domestic returns have– in particular large-cap domestic in the past two or three years — but may present better value in the future.”

Digging deeper, Hook said, they could probably increase their small-cap stock exposure, too.

Hook said he would never suggest overweighting any one asset class from a timing perspective – diversification and monitoring the portfolio for rebalancing opportunities mitigates that issue.

They also need to take a closer look a the expenses of some of their mutual funds. Two of them have high expense ratios of 2.05 and 1.83 percent. Hook said they may want to consider less expensive alternatives.

And the couple has some sector funds, which Hook said many times present more risk because they are concentrated by definition to one sector or industry of the economy.

Money makeovers offered by should be treated as general advice about personal finance and money decisions. Before you make any changes to your personal financial plan, see a professional who can consider your entire financial situation. If you’d like a free money makeover, email moc.p1561564955leHye1561564955noMJN1561564955@ksA1561564955.

Net Worth:


  • Checking: $1,000
  • Money Markets: $64,000
  • 401(k) plans: $463,500
  • IRAs: $357,000
  • Mutual funds: $179,000
  • Home: $650,000
  • Personal Property: $300,000
  • Autos: $14,000
Total Assets: $2,028,500


  • Car Loans: $11,200
  • Mortgage: $164,300
  • Home equity line of credit: $54,500
  • Student loans: $24,600
Total Liabilities: $264,600
Total Net Worth: $1,763,900


Annual Income:

  • Jared: $100,000
  • Melody: $80,000

Monthly Expenses:

  • Income Taxes: $5,223
  • Housing: $3,240
  • Utilities: $690
  • Food: $1,000
  • Education: $600
  • Personal Care: $800
  • Transportation: $1,405
  • Medical: $757
  • Insurances: $233
  • Entertainment: $170
  • Charity: $100
  • Gifts: $100
  • Misc.: $100