We're 56 and Have Less Than $250K in Savings, Can We Still Retire at 65?

Updated: December 19, 2022

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It’s a question that everybody who isn’t a multi-millionaire finds themselves asking. How much money do I need to have saved to retire comfortably?

In fact, we get emails like this fairly often:

Hi, MoneyGeek,
My wife and I are both 56 years old.
We make about $97,000 a year and would like to retire on a similar income and keep a similar lifestyle.
We’ve saved $178,000 — about $100,000 of this is in our 401k accounts. Neither of us have pensions.
We’d like to retire at 65, but we can’t, can we?

Letters like these, and this is a hypothetical one, are never easy to answer — because, yes, this letter writer could retire at age 65 or age 57. However, it doesn’t mean it would be smart. And, of course, the math for saving for retirement is complicated, as is this crazy ride we call life that unfortunately doesn’t come with an instruction booklet. Luckily, in the case of retirement, MoneyGeek has provided tools and information to help you decide if retiring early is the best financial decision for you.

Let’s analyze this letter writer’s situation and figure out how much they need to save to retire, and most importantly, what they need to be thinking about.

Postponing Retirement Can Help You Get More Money

Age matters a lot when it comes to retirement. We ran the letter writer’s scenario by Chuck Czajka, a certified social security claiming strategist and founder of Macro Money Concepts, a financial services firm in Stuart, Florida. He pointed out right away that the idea of retiring at age 65 is somewhat antiquated.

“If you’re going to retire at age 65, remember, it is not your full Social Security retirement age,” Czajka says. “If you begin taking Social Security at age 65, you will receive a reduced benefit check. So, you and your spouse may want to consider waiting until age 67, the full Social Security retirement age, in order to collect the full benefit.”

But according to Czajka, the letter writer might want to delay social security benefits even longer to get the most cash.

“It might make sense to wait until age 70 to get additional deferred retirement credits,” Czajka says. “Assuming you take it at age 67, you would have to fund $97,000 for the first two years and then reduce what you’re taking from retirement accounts.”

Calculate the Amount You Should Save Based on a Percentage of Your Income

Boy, does it matter. Some people become fixated on a random amount, say $150 or $300 per month, to put away for retirement. In reality, it’s best to calculate a specific amount based on the annual percentage of your income to get the most out of your retirement savings.

Czajka says that assuming the letter writer put away 15% of his and his wife’s gross income ($14,500 at 5%) for ten years, they should have an account balance of $472,322. But, as he noted, if they retired at age 65 and took Social Security at age 67, for two years, they would spend $97,000 annually. So at age 67, they would have about $278,000 left in income, plus Social Security.

“Assuming you would receive a combined Social Security benefit of $50,000 at full retirement age, you have an income deficit of about $47,000. So, in simple terms, you will run out of money in about seven years.”

Invest Sooner so You Can Retire Earlier

Obvious advice, to be sure. But the letter writer’s plight shows why. Czajka says that for the couple who wants to retire, the math for retirement might work if they had an amount of at least $700,000 in their bank accounts by the time they were 67, assuming they waited until that age to retire.

But that would be a tall order for this hypothetical couple.

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“To save $700,000 by age 67, at a 5% growth rate, you would need to save about $32,000 per year or roughly 33% of your gross earnings,” Czajka says, obviously referring to the couple’s situation and not everybody’s, adding, “Now, this is just a very broad-brush analysis. There are other factors such as getting a higher rate of return, tax rates and inflation.”

By crunching the numbers now, you can save years spent working in the future. Try using a compound interest calculator to determine how much money you’ll need to put away at what frequency and what interest rate. If you realize you’re going to come up short with your retirement money, how should you proceed?

You shouldn’t despair, according to Daniel Milan, managing partner of Cornerstone Financial Services, a wealth management firm in Southfield, Michigan.

“In my opinion, the question isn’t about how much from a percentage standpoint should someone be saving. Instead, the question should be what the goal is that you’re trying to accomplish,” he says.

So if you haven’t been putting away 15% of your income toward retirement, Milan’s advice might offer hope.

“In other words,” continues Milan, “what is the total amount of savings you are trying to accumulate in order to meet your income goals in retirement? In essence, take a goals-based planning approach rather than a percentage of savings approach. You want to determine what you need to save and invest in order to reach a specific objective. First, determine your goal and then build a financial model to determine what is necessary from an annual savings perspective. That becomes the targeted ‘savings rate.’” But if you’re young, and you have plenty of time before you retire, aiming to put away 15% of your income towards retirement would be a good start. If you’re middle aged or approaching retirement, and you’re floundering, you may want to consider working with a financial advisor to nail down your retirement strategy.

Establish Good Financial Habits Today

We can get hung up wondering if we’re saving enough for retirement, forgetting that our future finances aren’t just based on putting money in 401(k)’s or IRAs or investing in annuities. Though, yes, that’s all important.

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In addition to saving for retirement, we should all be asking ourselves — can I be doing more to reduce my debt? If you’re spending a lot of money paying off interest, thanks to money you’re carrying on a credit card, that’s cash that could be going to your retirement.

While you should spend money on things that bring you joy, are you comparison shopping for big purchases, like a car or TV? Are you paying attention to prices when you’re engaged in less fun but still expensive activities, such as comparison shopping for car insurance? Are you cutting coupons or downloading digital coupons before you grocery shop? These may seem like minor ways to save money, but savings add up. And if you can establish good financial habits now, those will likely carry over to retirement when money is tighter.

Still, to answer the letter writer’s question, yeah, they really shouldn’t retire at age 65.

About Geoff Williams

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Geoff Williams has been a professional writer for over three decades and a personal finance journalist for over 15 years. He contributes financial content to MoneyGeek, with expertise in personal finance, real estate, entrepreneurship, credit cards and loans. He has been writing for various publications, including The Wall Street Journal, The Washington Post and CNNMoney. He also authored several books, including “Living Well with Bad Credit.”

Williams earned his creative writing degree from Indiana University Bloomington.