Need help for family member

[Jman21]

I've been using the advice on this site for years but I need some help for a family member's portfolio.
63 yr old female - single / never married / no kids
Job will be eliminated in January - will probably look for part-time job
Will need to find healthcare coverage if not through part -time job
Healthy / no medications / exercises daily
Mid cost of living state and city - AL
Very conservative / likes set amount to spend each month

No Debt - owns home worth $200K
Emergency fund - $25K hy savings
CD's - $250K - 5% interest rate - will mature in May 2025
401K - $147K vanguard SP500
IRA - $67K vanguard SP500

Soc Sec
63 - $1525
64 - $1600
65 - $1733
66 - $1866
67 - $2000

She needs/wants to $40K/yr before taxes

Questions
She wants to retire early as possible. Is 65 doable?
What to do with CDs when they mature? Annuity? Rollover to 3 to 4% CDs? Buy treasuries / ladder?
Should she leave the 401K and IRA alone? Quit reinvesting dividends? What the expected dividends on these funds?
How would you set this up to maximize returns (very conservatively) to achieve approx. $3500/month?

Thank you for your suggestions.

[EdNorton]

Yes she can with a 4% withdrawal rate. At age 65, SS will be $20k, 4% of $500k will give other $20k. If it was me, I'd keep working till 67.

[retired@50]

63 yr old female - single / never married / no kids
Job will be eliminated in January - will probably look for part-time job
Will need to find healthcare coverage if not through part -time job

For healthcare, if not from a job, then start here: https://www.healthcare.gov/

She could use an ACA plan until she's 65. Then she would transition to Medicare.

Incidentally, losing a job that provides healthcare is a "life event" that will allow her to attain ACA coverage even if it's not during the typical open enrollment period.

Regards,

[HomeStretch]

Is there a reason your relative will not work full time (rather than part time) for a couple more years to beef up their retirement savings?

Please clarify - does the $40k desired spend include income taxes or not? Does it include post-retirement healthcare costs and periodic purchases such as a new car or home repair/maintenance?

Part time jobs often do not offer healthcare insurance benefits. Will the current job offer COBRA benefits when laid off? ACA insurance coverage may be an affordable option. But AL is not a Medicaid expansion state so your relative must keep their ACA MAGI high enough to be eligible for ACA coverage.

[123]

The earnings limit for individuals under FRA is $22,320 for 2024 and will likely go up for 2025. So it's possible for her to have some earnings and still receive social security.

[Jman21]

Thank you for the replies. Does anyone have any suggestions about portfolio set up? What about the CDs - should they be rolled over? Maybe purchase and annuity with some of the proceeds?

[retired@50]

Thank you for the replies. Does anyone have any suggestions about portfolio set up? What about the CDs - should they be rolled over? Maybe purchase and annuity with some of the proceeds?

I'd probably roll over the CDs, since this person is "very conservative" as noted in the OP.

The interest earned from these will begin to decline with the Federal Reserve lowering the Fed funds rate, but that's one of the costs to having a guaranteed deposit account.

An SPIA annuity would probably be a better idea once this person is in their 70s.
More detail here: https://www.bogleheads.org/wiki/Immediate_fixed_annuity

Regards,

[HomeStretch]

Thank you for the replies. Does anyone have any suggestions about portfolio set up? What about the CDs - should they be rolled over? Maybe purchase and annuity with some of the proceeds?

What does the person want to do?

They seem a bit young for an annuity.

Rolling over the FDIC-insured CDs are fine as long as they are not opening a bunch of CDs all over town. Personally for simplicity I would open a Taxable account and use brokered CDs/treasuries/MMFs.

[TheGiantess]

I'm no expert like so many other people on this forum but what jumped out at me is your statement that she "wants/needs $40,000..." Has she tracked her expenses for awhile or does she just think that is what she needs? I have many friends who have no idea what they spend and would probably guess they spend $40,000 but spend a lot more. Most people also don't think about inflation. She could live another 35 years... I get it, I'm 60 and if I was losing my job I would prefer to look for parttime but she should consider another full time job for at least another year or two. I wish her all the best.
TG

[dogagility]

She needs/wants to $40K/yr before taxes

She wants to retire early as possible. Is 65 doable?

Use this simple tool to calculate how much spending her portfolio can support. https://tpawplanner.com/plan

I put her numbers into this calculator. Input assumptions 50:50 stock/fixed income asset allocation; living to age 95; $489,000 portfolio balance; retired now; taking social security at age 70 ($2519/month).

The tool indicates she can withdraw about $5400/month from her portfolio if she retires now. With very poor historical returns (5th percentile), she would have $3500/month available for spending.

Based upon this, she can retire now.

I would highly recommend she wait until age 70 to claim social security if she is in good health. This maximizes use of a superb, stable, and inflation-indexed income stream.

What to do with CDs when they mature? Annuity? Rollover to 3 to 4% CDs? Buy treasuries / ladder?

Treasuries or other bonds would be my recommendation.

Should she leave the 401K and IRA alone? Quit reinvesting dividends? What the expected dividends on these funds?

I would transfer her 401k into her IRA when she loses her job for simplicity sake.

I would not even worry about dividends. They are unimportant for a tax advantaged account like an IRA.

How would you set this up to maximize returns (very conservatively) to achieve approx. $3500/month?

I'd suggest an asset allocation of between 30 - 50% total stock market index funds and the remainder in short term treasuries or other short term bonds to reduce volatility of her fixed income asset allocation.