We Have A $300,000 IRA And Own Rental Properties That Bring In $3,000 Per Month — Can We Retire Comfortably At 65?

In a hypothetical scenario, consider a couple with a $300,000 individual retirement account (IRA) and rental properties generating $3,000 monthly income. They aim to retire at 65. This situation prompts an important question: What does the average American need to retire, and how does this couple’s situation compare?

Understanding Retirement Needs

As of 2024, the median retirement savings for American households is $87,000, with substantial variations across age groups. For example, households under 35 have a median savings of $18,880, while those between 55-64 have $185,000. The mean savings are significantly higher, indicating a skew because of wealthier people. For instance, the average for those ages 55 to 64 is $537,560.

The $300,000 IRA

A common rule of thumb for retirement withdrawals is the 4% rule, introduced by Bill Bengen in 1994. The theory uses a specific set of assumptions including a targeted asset allocation of 50% stocks and 50% intermediate-term U.S. government bonds, historical market results, and a fixed 30-year retirement period. You withdraw 4% of your portfolio in your initial year, and in subsequent years increase the dollar amount of your withdrawal for inflation. In theory, by following this principle, you should have a high probability of your annual withdrawals lasting 30 years. Applying this to a $300,000 IRA would yield about $12,000 per year or $1,000 per month. This figure can vary with market performance and inflation. It’s also essential to consider that the average and median retirement savings figures include those with more substantial savings, indicating that many Americans might not have enough.

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Rental Income Considerations

The couple’s monthly rental income of $3,000 adds a significant buffer. However, owning rental properties involves costs like maintenance, property taxes and insurance, which can increase over time. The ability to cover expenses during tenant vacancies is crucial, as rental income is not always guaranteed.

During the COVID-19 pandemic, many landlords experienced decreased rental income because of tenants’ financial struggles. In a national survey conducted across 10 U.S. cities, 62% of landlords collected 90% or more of their rent in 2020, down from 88.9% in 2019. The share of landlords collecting less than half of their rent rose from 3% to 9%. Landlords often had to grant payment extensions or forgive rent, and some deferred property maintenance because of reduced income.

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Retirement Planning Strategies

While a $300,000 IRA and rental properties appear like a strong retirement plan, it’s imperative to consider the broader financial and economic context.

Maximizing Social Security Benefits

Delaying Social Security benefits until age 70 can significantly increase monthly payments. This strategy is particularly beneficial for people who expect a longer lifespan or have less savings. It’s essential to calculate the optimal time to start receiving benefits based on individual circumstances.

Healthcare Considerations

Healthcare costs often rise as people age, with a significant portion of retirement savings potentially going toward medical expenses. It’s vital to plan for these costs, including long-term care, which can be exorbitant. Considering Medicare and supplemental insurance options can help mitigate these expenses.

Estate Planning

Estate planning is an often overlooked aspect of retirement planning. It involves making arrangements for the distribution of assets and can include creating a will, setting up trusts and considering tax implications. Proper estate planning ensures that your wishes are honored and can provide peace of mind.

Adjusting Lifestyle And Spending

Retirees may need to adjust their lifestyle to live within their means. This could involve downsizing to a smaller home, reducing discretionary spending and finding cost-effective leisure activities. Living a more modest lifestyle can significantly extend the life of retirement savings.

Staying Informed And Adaptable

The economic landscape, tax laws and personal circumstances can change, impacting retirement plans. Staying informed about these changes and being willing to adjust plans accordingly is essential for maintaining financial security in retirement.

*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.

Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest and eHow. She is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes that the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.

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