Before We Start: Can You Still Draw Your Pension At 55
The current age at which people can access their pension pots is 55. However, this age is set to rise over time to reflect increases in the state pension age. From 2028, the ‘pension freedom age’ will rise to 57, so if you haven’t reached 55 by this time then you will have to wait another two years before being able to access your pension pots. There may be further increases in future.
Therefore, if you expect your retirement to take place later than 2027, then wherever it says ’55’ below, please assume this is ’57’.
What Is The Age Pension And Am I Eligible
The age pension helps some people to pay for the cost of living once theyve retired. You need to be 66 or older and meet income and asset means tests to be eligible.
Its important to note, the qualifying age will gradually increase 4 by six months every two years, to 67 years by 1 July 2023. So, the age youll be eligible to apply for age pension depends on your date of birth.
If you were born between
You qualify at5
1 January 1954 to 30 June 1955
1 July 1955 to 31 December 1956
66 years and six months
From January 1957
Do You Have Enough To Retire At 55
If you have enough to retire at 55, what are you waiting for? I recently met with a client who thought he needed to work for another 10 years.
If you dont have enough
If you dont have enough money to retire at 55, dont panic! There are options available to help bring forward the date that you can retire. For example, you can:
1. Save a little more each year
* By taking more investment risk. There is no guarantee that taking more risk will deliver a higher investment return.
Read Also: How To Retire In 20 Years
The Power Of Compound Interest
Another big unknown factor is how the investments in your pension fund will perform during the saving-up period . We’ve assumed a steady rate of 4 per cent in the calculations below, but it may be higher or lower. You can help your pension along by ensuring it is invested in the best pension fund for you – most workplace pensions start off in the default fund, which may not be ideal.
To Retire At 55 You’ll Want Savings Outside Of Retirement Accounts
Most people want more control over their day-to-day after they retire, not less. The thought of having restricted access to your own retirement savings is probably less than ideal. But no one said retiring early at 55 was easy, right?
You’ll generally have the best opportunity to live the lifestyle you want in retirement and retire early if you have investment assets outside of your retirement accounts. A taxable brokerage account is the most flexible type of investment account. There is no contribution limit or rules about when you can sell funds and withdraw the cash. In exchange for this unlimited flexibility, you sacrifice the tax-deferred growth and tax deduction you receive with 401 or 403 contributions.
But that’s not to say a brokerage account is tax inefficient, either. Long-term capital gains tax rates are much more favorable than 401 or IRA withdrawals which are taxed as ordinary income. In fact, a married couple filing jointly with income under $80,000 in 2020 would pay a 0% tax rate on long-term capital gains!
You May Like: Best Places To Retire For Gardeners
What Is A Good Pension Pot At 60
When people think about early retirement, they think about pensions. Im often asked what is a good pension pot at 60?
The average pension pot in the UK is £50,000, but simply knowing what the average person has in their pension pot in the UK doesnt help you to retire early.
It has no bearing on whether you have enough to retire early. I would go as far as saying that its irrelevant to whether you can afford to retire at 60.
The question you should be asking is how much do I need to retire?
This broader question takes into account not only your pensions but your savings and investments too.
You will also need to consider any other income you will receive like the State Pension or any final salary pensions. Deciding what retirement lifestyle you wish to lead, will help you work out how much income you need.
How Old Do You Have To Be To Retire
Full retirement age, or the age you need to be to collect full Social Security benefits, is 66 years and two months for those born in 1955 and will gradually increase to 67 for those born in 1960 or after. How old you have to be to retire comfortably depends on the lifestyle you want to have and how much you have saved. The earlier you retire, the larger the nest egg you will need.
Recommended Reading: Can I Take Early Retirement At 62
Create A Culture That Honors Experience
If companies are to win back the hearts and minds of baby boomers and other generations of mature workers, they need to start with the work environment itself, which has become increasingly alienating to anyone over the age of 50. Human resource practices are often explicitly or implicitly biased against older workers, and these biases can seep into the culture in a manner that makes them feel unwelcome.
Traditional recruiting channels such as want ads or help wanted signs may not attract older workers either. Twelve years ago, pharmacy chain CVS looked at national demographic trends and concluded that the company needed to employ a much greater number of older workers. But managers didnt know how to find themolder people shopped in the stores but didnt apply for openings, perhaps believing they wouldnt be hired. Now the company works through the National Council on Aging, city agencies, and community organizations to find and hire productive new employees.
Retirement, as its currently understood, is a recent phenomenon. For most of history, people worked until they dropped.
How Much Retirement Income Will I Need
A popular way to estimate this figure is the 70 per cent rule, which states you will need 70 per cent of your working income to maintain the lifestyle you want in retirement. So if you retire on a salary of £50,000 you would be looking at achieving an income of around £35,000.
For some people 70 per cent may be generous and they would be comfortable living on less. Conversely, others may struggle.
How Much Income Do You Need In Retirement
If youre thinking about retiring at 55, you need to ask yourself how much will I spend in retirement?
This is the starting place for any retirement planning. This will determine how much you need in your pensions and other savings to retire at 55.
If your answer is I havent got a clue, then take a look at your current situation.
- What do you currently spend each month?
- How is this likely to change once you retire? For example, will you spend more on travel but less on commuting?
- Are there any one-off expenses, like repaying the mortgage or helping the kids?
Where possible, split out the need to haves from the nice to haves. We call these basic expenses and leisure expenses.
To help you get started, you can .
If youre still struggling, then go with the 70% rule. This states that the average retiree requires 70% of their normal working income. So, if you currently earn £60,000 per year, youre looking at a retirement income of £42,000 per year.
At What Age Should You Retire
Retiring is a process, and the happiest retirees begin planning for about five years. Most people are unaware of the need for planning and end up opting for early retirement when their companies bring up the offer.
As discussed earlier, there is no right or wrong age to retire it all depends on how prepared you are.
Also Check: How Much Will I Retire With Calculator
You Sacrifice The Power Of Compounding Interest
Time is your friend when you are saving for retirement, but not when you are spending. If you sock away $250 a month $3,000 a year from age 25 to age 55, you’ll have about $237,000 when you retire, assuming you make no withdrawals and earn an average 6 percent annually on your investments. Seemingly not a bad return on your $90,000 in contributions.
But let’s say you work 10 more years and retire at 65. In that scenario, you’ll have about $464,000, nearly double. Why? The extra decade’s worth of contributions helps, but that only adds up to $30,000. The real growth comes from another 10 years worth of interest earned not only on all the principal you contributed but also the interest earned on the interest that has compounded for four decades.
Retirement Rules: Why 65
Age 65 has long been considered a typical retirement age, in part because of rules around Social Security benefits. In 1940, when the Social Security program began, workers could receive unreduced retirement benefits beginning at age 65.
From 1983 to 2000, the rules changed to gradually increase the Social Security full retirement age to 67. Currently, the Social Security full retirement age is 66 for those born between 1943 and 1959, and 67 for anyone born 1960 or later.
And the Social Security age requirement is not the only thing that’s changed. In 1940, anyone retiring at age 65 would spend, on average, around a dozen years in retirement.
Today, because of improvements in health care, that number has increasedand will likely continue to increase. So it’s important to factor this trend into your retirement plans.
Tip: Looking for estimates? Start visualizing retirement with your own info by visiting our planning tools and calculators.
Watch: How one woman found a new normal after leaving her long-time job.
You May Like: Do I Have Enough To Retire Early Calculator
How Medicare Affects Early Retirement
As mentioned above, Medicare benefits start when you turn 65. To be exact, benefits kick in on the first day of the month in which you turn 65. Retiring earlier than that is considered early retirement, and you will need to make other plans to secure adequate health insurance coverage until your Medicare coverage begins. As a retiree, you likely won’t have health care coverage options through an employer, but you can access plans through the health exchange marketplace.
Multiples Of 10 To 14 X Pre
This retirement income requirement rule of thumb suggests using your income just before retirement and multiplying it by a number between 10 and 14.
For instance, we will suppose that your annual income right before retirement was $95,000. According to the rule, you should have at least the following savings:
- Multiple of 10: $95,000 x 10 = $950,000
- Multiple of 11: $95,000 x 11 = $1,045,000
- Multiple of 12: $95,000 x 12 = $1,140,000
- Multiple of 13: $95,000 x 13 = $1,235,000
- Multiple of 14: $95,000 x 14 = $1,330,000
This rule might not be the most effective means to calculate how much you need to save if youre a young career professional who plans to retire early. Since the rule assumes the highest amount you will be earning right before your retirement, you might still not earn a significant enough retirement income according to this rule.
You May Like: How Can I Retire At 55
Determine Your Anticipated Age Of Retirement
While assessing your finances, it’s ideal to factor in the age you want to retire. This equips you to put a plan in place to use money wisely throughout your retirement. The earlier you decide to plan for retirement, the more time you have to prepare for the future.
For example, imagine you decide when you’re 45 that you want to retire at age 50. This gives you, your family and your workplace plenty of time to make the necessary arrangements. You have time to make a health care plan, to calculate your savings budget and make an agreement with your employer about your retirement package.
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.
Recommended Reading: How Much Money Is Needed To Retire At 62
How Our Retirement Calculators Can Help
Meet Mac. Hes 51, married and planning to retire at age 65.
To work out how much Mac might need in retirement, he tries our retirement needs calculator. Mac is hoping for a comfortable standard of living in retirement, and our calculator estimates this will cost him $1,154.49 a week or $60,033 a year. Hes also planning on buying a new car and doing some travelling once retired, and thinks hell need $40,000 for these one-off expenses. Based on a life expectancy of 81 years, our retirement needs calculator estimates hell need a total of $993,473 to fund his retirement.
So how much might he have in retirement, and how long is his money likely to last, based on his current and expected financial situation?
Mac uses AMPs retirement simulator to find out. Mac currently has $172,000 in superannuation invested in a balanced investment option, an annual pre-tax salary of $82,000, shares worth $20,000, and the couple owns their family home. Based on this information, our retirement simulator calculates hell retire with savings of $294,944. Based on his expected expenditure in retirement outlined above, our retirement simulator estimates his money will only last until age 71, leaving him with a funding shortfall of 10 years in retirement.
While this news may seem scary, its not an uncommon situation. Luckily, finding out about the possible shortfall now means there may still be ways to boost his savings before retirement.
What do you do if you wont have enough to retire?
Normal Retirement: Ages 66 To 70
For many, the upper 60s is the golden mean of retirement timingyou’re old enough to have built up a nice financial reserve and young enough to enjoy your job-free years. The fact that you’ll get your full Social Security payment at age 66-67 can make a huge difference, especially if you’re relatively healthy and likely to have an average, or longer-than-average, retirement.
Waiting also gives you a few extra years to shore up your tax-advantaged investment accounts. Investors who are at least 50 years of age can make a catch-up contribution to their 401 or IRA. For 2021 and 2022, those 50 or older can contribute $7,000 to a traditional IRA or Roth IRA. If you use a 401 to save for retirement, you can defer up to $26,000 of your salary in 2021 once you reach the age of 50.
Also, waiting until you hit 65 means that you are eligible for Medicare, which is typically a fraction of the cost of individual insurance plans for older adults.
Normal retirement age, or the age at which you receive full Social Security benefits, gradually increases to 67 for anyone born in 1960 or after.
How To Retire At 62
U.S. Census Bureau data suggests that 63 is the average retirement age in the U.S. This makes sense, as 62 is the earliest age you can start collecting your own Social Security retirement benefits.
Be careful of claiming Social Security benefits right away. Many people who claim their benefits at 62 end up regretting this decision when they see how much more they could have gotten if their benefits had started later.
Even with a delayed Social Security start date, you should be able to save enough to retire at 62 and maintain a comfortable lifestyle if you follow a solid savings plan. Planning ahead means you’ve thought carefully about the items on your retirement wish list and created a strategy to reach your savings goal.
Your savings plan will be tailored to your specific goals and current income. Then, once you retire, your retirement spending plan will kick in. It should be tailored to your situation, but good plans have a few things in common: If you consolidate accounts, understand your Social Security-claiming options, know which accounts you will withdraw from, and estimate the taxes you’ll pay in retirement, then you’re doing things right.
What Else Do You Need To Think About
Pensions and inflation: how much will prices rise?
For a while now we have experienced low-interest and low inflation rates. But those of you looking to retire at 55 will likely remember the high inflation of the 1980s. One of the biggest risks to your retirement income is that it wont rise with inflation . As a result, your money will be worth less and less.
Its difficult to appreciate the small but corrosive effect of inflation. Over a 30+ year retirement, a 2.5% pa inflation rate can have a huge impact.
For example, £5,000 of income in 1995 will need to have grown to around £10,000 in 2021 in order to keep pace with inflation.
So if your income doesnt increase with inflation, it could mean living a low budget lifestyle in the future.
Some investments, such as inflation-linked bonds, are specifically designed toprotect against inflation.
When creating your retirement income plan, an independent financial adviser will take these risks into account. They will help you work out the right balance between maximising income today whilst ensuring it is not eroded by inflation over time.
They will also create a withdrawal policy statement, which maximises how much income you can spend in retirement without the risk of running out of money.
You May Like: Orchard Heights Gracious Retirement Living