Schlesinger says Amy can retire by drawing $100,000 yearly from her rollover IRA as a bridge until Social Security pays $51,000 annually at 70.
Amy's $3.4 million in real estate is illiquid, which means cash flow is the real barrier to a secure retirement, not net worth.
Schlesinger warns against paying off Amy's 3% mortgage since the 10-year Treasury yields 4.6%, making it more profitable to invest the cash instead.
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Amy, a 65-year-old Bay Area tech professional, called into Jill on Money with Jill Schlesinger for a retirement readiness check. Her words set the stage: "I thought I had a good plan a few years ago and then got laid off. It kind of threw me off for a couple years. I lost ground in terms of not being able to save money and kind of drawing on stuff. That's the reason why I'm kind of skittish about things."
On paper, Amy looks wealthy. She earns a $230,000 base with a $40,000 to $50,000 bonus, owns a $2.2 million San Francisco home with $320,000 owed at 3%, and a $1.2 million wine country second home. Retirement accounts total $915,000 across a $430,000 variable annuity, a $300,000 rollover IRA, a $185,000 Roth IRA, a $110,000 Roth 401(k), a $190,000 brokerage with concentrated stock positions, and $75,000 cash. Monthly spend runs about $9,000.
Schlesinger's call is that Amy can retire, but only if she stops confusing net worth with cash flow. "I hate to tell you this, but so much of your wealth is in these two homes," Schlesinger told her. Real estate does not pay grocery bills. Roughly $3.4 million of Amy's balance sheet is illiquid, and the wine country home is not rented.
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The math that gets Amy to retirement is simpler than the balance sheet suggests. Schlesinger walked it: "Let's just do a round number. Let's say you take out from that rollover account $100,000 a year and we just get rid of it, we deplete it, and you pay the tax that's due. You're pretty close to your $9,000 a month on your spend, because it's like $100,000 with his $2,200 a month."
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