$1.6 Million Nest Egg at 61 Buys About $35,000 a Year Until Social Security Arrives

At age 61, a person with a $1.6 million investment portfolio faces a challenging decision when Social Security benefits become available between ages 67 and 70. While the portfolio can initially support around $35,000 in annual spending after accounting for taxes and health insurance premiums, the withdrawal rate should be conservative, between 3.25% and 3.5%.

Once Social Security kicks in, the same portfolio can potentially support double that amount due to higher income. The biggest risk is sequence-of-returns, where poor early years in the portfolio can have lasting negative effects. Strategies to manage these bridge years include withdrawing from taxable accounts first, using Roth balances, and holding a short Treasury ladder for immediate expenses.

It's crucial to keep modified adjusted gross income low to preserve ACA subsidies and avoid the high out-of-pocket costs of ACA marketplace plans once Social Security begins. Consulting a fee-only advisor can help navigate these complex financial decisions.