‘My whole financial world is upside down’: I’m ‘medically retired’ at 51 with $428K in stocks. Is this enough to live on?

I haven’t worked since and am currently filing for Social Security Disability Benefits. I am still receiving my monthly disability benefits from the VA for $350 and have again filed claims for an increase in percentages. Both of these processes are dragging on in time and I’m hoping for a resolution by year’s end.  

Now let me get to our finances. Our family’s monthly take-home pay is $4,500 with $4,000 in expenses. We still do not have any debt except for the $50,000 I owe on the mortgage. Our home is worth close to $400,000. We have $70,000 in liquid savings ($50,000 in a 4% CD and $20,000 in a high-yield savings account earning 3.85%).

We also have $44,000 in an emergency fund, which I am using to pay down the mortgage, $247,000 in our portfolio (80/20 stocks/bonds), $105,000 in a 403(b), $61,000 in another stock account and $15,000 in a traditional IRA. We also own about $30,000 in gold/silver coins and high-end jewelry/Rolex watches. We still own all three vehicles. 

Related: We’re living in ‘end times’ when you can’t retire on $1 million

Social Security and VA benefits

I am not sure if we will be retiring to the Philippines, as my mother-in-law has passed and my father-in-law is really getting up there in age. I found out that I will be limited in my VA medical coverage and healthcare costs are very expensive there. My wife has stated that she wants to return to the States after her father passes. We will leave Maryland for warmer climates. 

I consider myself medically retired now. My wife would like to work for five more years and then retire. If I were to get Social Security disability and increased VA benefits, it would be around $2,000 a month for Social Security and between $2,000 and $4,000 for VA benefits. When my wife draws her Social Security benefits, it should also be around $2,000 a month. 

We hope to find a home in the $200,000 to $250,000 range, which we will pay cash for. We want to live comfortably and maybe buy a small 25-foot boat to fish/crab. I didn’t factor in taxes because we don’t know where we will retire. It could be South Carolina, Georgia, Alabama, Mississippi or Texas. Wherever we go, it will be close to a VA hospital and the ocean. 

We are aiming for a 4%-5% withdrawal rate for 30 years. Will we have enough? I haven’t factored in Social Security or VA disability because I am not getting them yet. What are the withdrawal limits and tax implications for a 403(b) and a traditional IRA? Any insight you could provide would be greatly appreciated. Thank you again for your time.

Medically Retired

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Dear Medically Retired,

First off, thank you for your time. Thank you for writing a second time and sharing your story. You didn’t make any big moves without doing your research, and life changed both in terms of your own ability to work, however ready and willing you were, and in terms of your wife’s family and those aforementioned medical costs in the Philippines. 

Here’s the headline from your letter and the green flag for your retirement: You have been saving, investing and putting money into retirement accounts, and diligently paying off your mortgage. You did the maximum financial preparation when you were able to work, and those efforts will pay off in the years ahead. You are also aiming to retire debt-free. That’s huge.

Your challenge, and one you appear to be facing head-on, is your $4,000-a-month expenses. Because of your inability to work, your task is to exercise more control over your expenses because you have less control over your income (although hopefully your disability benefits will be resolved sooner rather than later). This in-between time gives you an opportunity to plan.

The more modestly you can live, the easier your retirement. And here’s a secret: You can live like a millionaire in retirement, if you have a roof over your head that’s paid for, and you enjoy your pastimes, whether it’s fishing or playing golf. Your quality of life is based on having the ability and freedom to do the things you enjoy.

Alabama and Mississippi are among the states with the lowest cost of living, while Georgia and South Carolina would have more moderate costs of living. Texas, which does not have state income tax, is more of a crapshoot: You’ll get less bang for your buck in Austin or Dallas than Amarillo or Wichita Falls. Check out this MarketWatch state-by-state cost-of-living guide. 

Related: ‘Finance makes me break out in hives’: I inherited $240K from my parents. Do I pay off my $258K mortgage and give up my job?

Crunching the numbers

The reason we have savings is to dip into them when we absolutely need to and live off them when the time comes. If you had zero in the bank, you’d be in a very different situation. Despite your inability to work, you have a lot to be grateful for. That may be why there’s not an inch of self-pity in your letter. It’s worth noting. Bravo to you for all of the above. 

Let’s just look at your savings/investments: Your investment portfolio, 403(b), brokerage account and traditional IRA total $428,000. Taking $17,120 per year, or approximately $1,427 per month, would last you around 30 years. An 80/20 stocks/bonds portfolio would give you, conservatively, a 7% average annual return, not accounting for inflation. 

There are no withdrawal limits for a 403(b) or traditional IRA, but you may face higher taxes if you withdraw larger lump sums. You will also incur a 10% penalty, plus the requisite income tax, if you withdraw money before you reach 59 ½. Your required minimum distributions start at 73. However, you may be able to make penalty-free withdrawals related to your disability.

At your age, according to T. Rowe Price, you should have saved roughly 3.5 times to 5.5 times your preretirement gross income. And by 60, you should have six to 11 times your salary saved in order to be comfortably considered on track for retirement. But I’m betting most people reading this are saying, “That’s not happening.” It’s more of a goal/ideal, rather than a reality.

If you end up with $4,000 to $6,000 a month in benefits, and your wife has $2,000, you will have joint annual benefits of between $48,000 to $72,000; the top end puts you close to the median household income in the U.S. A comfortable retirement is roughly two-thirds of your annual working income. Your VA health benefits and zero mortgage will also help.

Hopefully, we’ll all be here in five years. Let me know how you’re getting on.

Don’t miss: I’m 51, earn $129K and have $165K in my 401(k). Can I afford to retire when my husband, 59, draws Social Security at 62? 

Readers write to me with all sorts of dilemmas. 

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