By Scott Burns

Q. I am 55 years old. My wife is 54 years old. I have $700,000 in my 401(k). My wife has $400,000 in her 401(k) and 457(b). We each have another $40,000 in Roth IRA accounts. We also have savings of $300,000 in a taxable account, mainly in stocks. We are in decent health. We are still working and earn $130,000 of combined income. I will not collect any pension in my retirement. My wife will have about $800 a month in pension. We have no debt. Our house is worth about $400,000. Our cars are paid off. Our children are grown and on their own. We still contribute the maximum allowed to our 401(k) and Roth IRA accounts.
Are we contributing too much to these accounts? Should we cut back and invest more into taxable savings? —B.M., by email

A. Yes, you can cut back on your current savings rate. How much you cut back will depend on when you retire. If you are saving the maximum in your 401(k) plans, you would be saving $22,000 a year each ($16,500 maximum contribution plus $5,500 “catch-up” contribution). You would be saving an additional $6,000 each of after-tax income in Roth IRAs. To put that money into the Roth’s you would have needed to pay another $2,000 each in income taxes, assuming a 25 percent tax bracket.

This means as much as $60,000 could be coming off the top of your income. Subtract another nearly $10,000 in employment taxes, and you are currently living on about $59,000 a year for personal consumption, shelter and income taxes on same. Of that amount, nearly $10,000 will be replaced by a pension, bringing the money you need from other sources down to $49,000.

This is the amount of income you will need to replace from a combination of retirement savings and Social Security. With $1,480,000 in financial assets today, you would not need to draw on Social Security benefits to support your current spending level. Given your earned incomes today, my bet is that you will easily be able to retire to a higher standard of living at age 62. Since your investment assets should grow on their own, with no additions, you are among the very rare birds that have saved more than enough.

These are all rough approximation figures, of course. You’ll have to do more exact figures to see whether the train tracks of expenses and retirement income actually meet. To get a good idea, free, I suggest playing with the online calculator at https://basic.esplanner.com/ .

Q. You often state, “When you retire, you will have Social Security benefits.” As one rapidly approaching 70 years of age, working full-time, and not having applied for any Social Security benefits yet, I question whether benefits will be provided to those eligible if they earn more than, say, $2,000 a month from their savings/investments. I hope to receive full benefits, but based on the direction of our country, don’t you really doubt that? —B.M., San Antonio, Texas

A. Social Security is funded by the employment tax, a distinct and dedicated tax on every hour of labor up to an annual income of $106,800. So while the tax revenue today is somewhat less than the cost of benefit payments, Social Security does not face the kind of danger that other programs— like Medicare parts A, B and D— face.

As the Social Security commissioner points out every year in the annual estimate of each workers future benefit, the ongoing tax revenue of the program would be enough to support paying 78 percent of benefits after the year 2037. Prior to that, it will support 100 percent of benefits, based on redeeming the Treasury securities in the Social Security Trust fund.

Another thing to consider is that Social Security benefits are already de facto “means-tested”—when your income from all sources exceeds certain amounts, up to 85 percent of your benefits are subject to the federal income tax. Future tax rates may be increased, but turning Social Security into a 100 percent welfare program is unlikely.