Youve Test Driven A Realistic Retirement Budget
According to a recent BMO study, the average retiree spends $2,400 a month, with $668 of that going towards accommodation. Try living on that amount for six months. If at the end of that six-month period you werent scrounging for change and even had a few bucks left over at the end each month, youre probably good to go!
Your Portfolio Is Updated
How long has it been since you took a hard look at your investment portfolio?
“There are three parameters that influence ones ability to live off ones savings at the onset of retirement: First, the size of the savings or investment portfolio upon retiring second, the expected growth rate of the portfolio going forward , and third, the amount of annual withdrawal/consumption the retiree is going to require to maintain this/her lifestyle ,” says Jeff de Valdivia, CFA, CFP®, of Fleurus Investment Advisory LLC in Fairfield, Conn.
If you haven’t done a portfolio checkup in a while, now is the time to do one. If your portfolio has taken a major hit in recent years, your nest egg may not be as large as you thought. And the longer-term consequences of the coronavirus pandemic on retirement security have yet to play out.
As you near retirement, you may also want to shift to a more conservative investment strategy to protect your retirement wealth.
It may be useful to sit down with a financial advisor as you carefully reassess your portfolio and figure out whether you need to make adjustments.
Housing Expenses Don’t Retire When You Do
Retiring without a mortgage is a common goal for would-be retirees, but it’s a goal that many fail to meet. According to an American Financing survey, 44 percent of retired homeowners between ages 60 and 70 still carry a mortgage.
Even if you have paid off your mortgage, other expenses don’t go away. Home maintenance and increasing property taxes can take up a large chunk of your budget, says Dorsey, the California financial planner. that the average homeowner paid $3,719 in property taxes in 2020, up 4.4 percent from 2019. As a rule of thumb, homeowners should set aside 1 percent of a home’s purchase price annually to cover repairs and replacement. That’s $3,500 per year on a $350,000 house.
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Take The Right Steps To Your Retirement Dream
Knowing how to retire is just as important as when you retire. Completing these tasks will save you a lot of heartacheand potentially a lot of money. Play it smart, do your homework, and take the steps to put yourself in the best position as you enter these years. After all, you want to live the retirement of your dreams! A qualified investment professional like those in our SmartVestor program can help you whether you’re 10 years out or 10 months out.
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
Youre Treated Differently Than Younger Colleagues
A manager who creates different standards for proficiency, depending on employee age, could be sending a message, said Rodriguez, who is also the author of the books Ready, Set, Work! and Ready, Set, Supervise! Furthermore, if your younger co-workers receive better, more desirable assignments, this might be more than luck of the draw.
Look closely at the way your boss treats younger employees. If youre clearly held to a different standard, their intentions might not need much interpretation.
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Medicare Private Insurance And Post
If youre 65 or older, you likely get health insurance from Medicare or a Medicare Advantage plan.
Original Medicare is made up of two parts Part A hospital insurance and Part B medical coverage. You may also choose to purchase a standalone Medicare Part D prescription drug plan or a Medigap supplement insurance policy.
If you return to work for an employer who offers private health insurance, you can take it and still keep your Medicare coverage. Youre allowed to have both.
Medicare may act as your primary coverage or your secondary coverage.
You may consider dropping Medicare Part B if you return to work. Some people do this to avoid paying the $170.10 monthly premium in addition to any employer health care costs.
However, this can be tricky. If youre not careful, you may owe penalties and face other issues down the road.
First, your employer must have more than 20 employees. If thats not the case, you may be penalized for dropping Medicare Part B.
If you have active employer coverage, you can choose to disenroll from Medicare Part B.
Once you lose your employer health insurance or return to retirement, you must sign up for Part B again within eight months.
Otherwise, you may face a lifetime late enrollment penalty.
Options If Youre Under Age :
- Retiree medical coverage through your employer.
- The insurance policy of a spouse/partner .
- Coverage through COBRA to continue health insurance for up to 18 months after losing your coverage through work. COBRA can be pricey because you pay the full premium . If you have dental and/or vision insurance through your old job, thats included as part of COBRA, too.However, if you turn 65 during those 18 months, you must apply for Medicare.
- A Health Insurance Marketplace plan. Availability varies from state-to-state and depends on your household income. Visithealthcare.govto learn more.
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Write An Announcement Letter Or Email
The next step in the process is to write your official retirement announcement letter. It’s optimal to write your announcement so you and your company each have a hard copy of your intentions to avoid miscommunication. Consider using an online template to draft a brief professional letter detailing your position at the company, what you enjoyed about your work and your intent to retire. Another important piece of information to include in an announcement is the anticipated date of your retirement.
You’ll Spend More Money Than You Think
A typical rule of thumb is that you’ll spend about 80 percent as much in retirement as you do when you work. After all, you won’t be shoveling money into your retirement account, commuting every day and, for that matter, paying Social Security payroll tax, assuming you have no more earned income. But at least in the early years of retirement, when you’re younger, healthier and newly freed from the constraints of work, you could very well spend as much as or more than you did before retirement. A J.P. Morgan Asset Management study found that there tends to be a spending surge by new retirees on travel, home renovations or relocation, and other retirement-related lifestyle changes that levels off after two or three years.
“Every day is Saturday, says Sean Pearson, a certified financial planner in Conshohocken, Pennsylvania. Once you don’t work, you wake up and look for things to do basically, how we all feel on Saturday. Some things might be fun and social. Some things might be work around the house. Most things cost some money, which is why Saturday is often the most expensive day of your week.”
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No 2 I Considered The Worst Case Scenarios And Created Backup Plans For My Backup Plans
Some of my worst case scenarios include:
- Massive stock market drop early in retirement
- Lack of meaning in my life
And one my biggest:
The worst case scenarios are not that bad once you start thinking about them. If the market tanked, I’d step up my side-hustles or go back to full-time work for a year. If I was bored, I’d hire a life coach.
Perhaps my ultimate worst case scenario is this:
Your Retirement Becomes A Topic Of Conversation
If you choose to discuss your impending retirement, thats one thing, but its a different story if your employer brings it up. Point-blank asking about your plans for retirement and making not-so-subtle comments about how much you might enjoy it could be a sign your boss is hoping youll give your notice, Rodriguez said.
Most likely, this will frustrate you and rightfully so because the decision to retire is a major move that shouldnt be pushed on you.
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Take A Percentage Of Your Income
A generally accepted guideline is that a person needs 70 to 80 percent of his or her preretirement income in order to cover post-employment costs. So, for example, you may ask, “If I earn $55,000 annually, how much money do I need to retire at 65?” Using the 70-to-80-percent rule, you need an income of $38,500 to $44,000 per year to retire. That means in order to fund a 20-year retirement, you would need assets totaling between $770,000 and $880,000. And if you retired earlier or lived longer and needed your savings to stretch for 30 years, you’d require anywhere from $1.16 million to $1.32 million.
Obviously, the amount you need will depend on your particular situation. If you currently spend 90 percent of your paycheck on basic necessities like rent and food, you will probably need to replace more than 80 percent of your working income in order to maintain your standard of living. On the other hand, if you’ve been devoting 30 percent of your income to paying down your mortgage and you get the balance paid off before you retire, you could potentially live comfortably on less than 70 percent of your preretirement earnings.
Keep in mind that not all of your funds have to come from your savings and investments. If you qualify for Social Security benefits, or if you have rental income or a pension, these can all factor into your retirement income.
Physical And Mental Ability To Work
Some physically demanding jobs, such as working in construction, are difficult to continue past a certain age. Even if you prefer to keep working, you may find yourself running into physical difficulties performing your work.
If you experience cognitive difficulties, or if such health problems run in your family, you may also find yourself considering retirement earlier than you might otherwise want to.
If you are concerned about your physical or mental ability to perform your job, talk to your doctor about your concerns. They may be able to give you a projected timeline for how much longer you can expect to keep working.
If you anticipate having to retire early due to your health or physical ability, start planning early for how you will handle your finances and healthcare during retirement.
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You Can Weather A Market Downturn
Young investors should welcome market downturns because they offer bargain-buying opportunities with a long time horizon for growth. Retirees on the other hand, need almost immediate access to their money and cant necessarily afford to wait for their investments to bounce back. Talk to your financial advisor to ensure you have the right portfolio drawdown strategy, asset allocation and other sources of income to withstand a sudden drop in stock market prices.
A Lot Of Talk About Cost
Its a bit more indirect than other approaches, but the underlying message is the same. If your employer constantly complains about budget cutbacks and the cost of employee salaries and benefits, this could be their way of encouraging you to retire, Rodriguez said.
For example, in 2017, the Napa Valley Unified School District encouraged more than 60 employees mostly teachers to retire early, reported the Napa Valley Register. The move was an effort to save millions of dollars in salary and benefits.
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Have A Plan For Health Care
Lets face it: Its not easy getting older. Our hips wear out, our backs ache, and everything just moves a little slower than it used to. The average couple who will retire this year will pay approximately $285,000 in health care costs throughout retirement.3 You know what that means? You need to have a plan for how youll pay for health care costs.
What Does Retirement Mean To You
For some, retirement means simply leaving their current job. These people are fine working, but they want a change, and making a change may come with a pay cut. For others, retirement means a complete exit from the workforce. If you’re married or have others who are financially dependent on you, they should be part of the decision. If you’re single, the answer is likely much simpler.
Some career-oriented people are not suited for retirement. They are used to being the go-to person and find they get bored in retirement. If this sounds like you, the answer as to when you should retire might be “never.” Before you retire, give some serious thought to what activities inspire and motivate you.
Start a list of hobbies that you want to pursue or organizations to which you want to contribute your time. From a mental and physical health perspective, stay active. Your body isn’t made to remain still all the time. Part of your retirement planning should include strategies for staying active and mentally challenged.
As an alternative to traditional retirement, look for ways you can try out retirement. Perhaps your current situation offers part-time work or a sabbatical. Maybe you can take a long leave of absence. Retirement is a major life change just like moving, marriage, or a job change, so plan on going through an adjustment period. The more time you spend thinking about and planning for retirement, the more likely youll retire at the right time.
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Evaluate Your Current Financial Situation
At this point, you should know how much you already have in retirement. You also have a target number of how much you think youll need in order to retire early. Now, the rubber meets the road. Take your target retirement number and subtract how much youll probably have in your retirement portfolioincluding investments, real estate, cash, and other assetsby the time you want to retire. See example below.
In this example, theres a big gap between the amount you need and the amount you will probably have in 10 years. Based on the example above, youll need to invest about $3,100 to $3,900 a month extra to bridge the gap.
Now what do you do? Thats up to you.
Determine What Kind Of Lifestyle You Want In Retirement
Before you do any calculations to determine how to retire early, you need to know what you think youll do in retirement. That dream will determine your budget. Want to travel the world? Then youll need a big budget. Want to travel to see grandkids? Open a business? Do volunteer work? Take the family on a huge vacation? Each of these dreams carries a different price tag.
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Write A Retirement Letter To Make It Official
After youve verbally announced your retirement, you need to take the next step and make it official with a written notification. This letter is for your boss, and you also send a copy to human recourses to keep them in the loop.
The retirement letter is the official announcement and proof of your retirement. And your company needs this official statement for their employee file.
Companies keep information like your contracts, performance results, and social security information to have a record of events per employee. When theres a potential lawsuit, the company needs all documentation related to the employee. And it occurs that employers have run into former employees filing for unemployment compensation. And the retirement letter in the employee file is proof that you left your job by choice.
So, that is why you need to write a retirement letter. And you want to keep a copy of your personal documentation as well.
How To Retire At 60
If your retirement plan includes walking away from your job when you’re 60, almost all of the steps outlined in the sections above apply to you, so be sure to read through that information.
The major differences are that working past the age of 50 gives you more time to save, plus you can contribute extra money to your 401 and IRA accounts. After you turn 50, you’re allowed to put an additional $6,000 into your 401 for a yearly total of $24,500. You can also put an extra $1,000 into your IRAs. Then when you retire at 60, you’ll have full penalty-free and tax-free access to your retirement savings.
If you don’t have savings or access to a pension, you’ll have to take a different approach. Learning how to retire at age 60 with no money is possible with some discipline and careful planning. Start by reducing your expenses and sticking to a strict budget. Since you’re still two years away from being able to claim Social Security benefits , you may want to focus on raising funds through working part-time and/or selling off physical assets like your vehicles, antiques, or rare collectibles. Learn more about how to retire without savings.
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