Consider Your Retirement Accounts And Cash Savings
Youâll likely generate retirement income from multiple sources, but retirement accounts, like 401s and IRAs, probably come to mind first. These accounts allow you to set aside money specifically earmarked for retirement. With traditional 401s and IRAs, contributions are often made on a pre-tax basis. Once you reach age 59 Â½, you can begin taking money out of these accounts with zero penalty . On the other hand, Roth 401s and Roth IRAs are funded with after-tax dollars, meaning youâll generally be able to take your distributions tax-free. You may also want to have some money outside of your dedicated retirement accounts, such as nonqualified investments or brokerage accounts, to help diversify your portfolio.
While retirement accounts are ideal for growing your wealth over time, theyâre also susceptible to market volatility. So itâs a good idea to set aside a portion of your savings in more stable places. As you work toward building a cash reserve , you might fund this with accumulated value in life insurance, cash or cash equivalents, money market accounts or CDs.
How Much Does The Average 60
If youâre approaching the age of 60, you likely have retirement on your mind. Have you saved enough? Just how much does the average 60-year-old have in retirement savings? According to Federal Reserve data, for 55- to 64-year-olds, that number is little more than $408,000.
However, this benchmark is merely an average. The amount of savings youâll actually need to retire comfortably will depend on your expenses, your lifestyle and your individual financial goals. Letâs dig into how taking a big-picture approach to your retirement can help you determine a savings target that works for you.
There’s Still Time To Give Your Savings A Good Boost Before You Retire
If you’re between 55 and 64 years old, you still have time to boost your retirement savings. Whether you plan to retire early, late, or never ever, having an adequate amount of money saved can make all the difference, both financially and psychologically. Your focus should be on building outor catching up, if necessary.
Its never too early to start saving, of course, but the last decade or so before you reach retirement age can be especially crucial. By then youll probably have a pretty good idea of when you want to retire and, even more important, still have some time to make adjustments if you need to.
If you discover that you need to put more money away, consider these six time-honored retirement savings tips.
Retirement Income Calculation Rules Of Thumb
When it comes to income required in retirement in Canada, there are several rules of thumb or schools of thought out there. If you are looking for a definite answer to put your mind at rest, you may be disappointed.
In fact, the one thing everyone readily agrees to is that when it comes to retirement income, it is not black and white and there is no 100% consensus.
Popular rules of thumb include:
How Much Do I Need To Retire At 60
So you’ve decided you’d like to retire a little early “How much do I need to retire at 60?” is probably the foremost question on your mind. Without a crystal ball, however, it can seem impossible to determine just how much saving you’ll need to do in order to enjoy a financially comfortable and fulfilling retirement.
Every retiree’s specific financial needs will be different, as their retirement plans, physical health, location, support system and other factors all vary. But regardless of your exact circumstances, there are some important financial considerations you may want to include when figuring out how much you’d need to retire at 60.
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Determine Your Retirement Readiness
If your employer’s policy is to offer retirement at age 65, think about whether you are really ready to quit from a psychological and a financial perspective. If not, consider whether you want to ask your employer to allow you to work a few more years, or if you’d like to be hired as a consultant.
Ideally, you will do this at least a year before you reach 65, as some employers start the retirement process early. Many employers now focus on hiring and retaining employees who are experienced and “know the business” to strengthen their intellectual banks.
Staying on as a salaried employee not only means you continue to receive a steady income, but you will also continue to receive health coverage and other benefits your employer offers. On the other hand, going the consultant route offers you more flexibility and could allow you to have more of a working retirement.
Make Your Medicare Vs Medicare Advantage Decision
Finally, seniors in their 60s need to decide how best to handle their medical care during retirement. Upon turning 65, seniors become eligible for Medicare or Medicare Advantage, an alternative plan to Medicare offered by private insurers. Understanding which route better suits your needs can be just as important as deciding when to file for Social Security benefits.
Original Medicare has been around for more than 50 years, and its greatest allure is that more than 90% of doctors and hospitals around the country accept it. If you enroll in original Medicare, you probably won’t have to change doctors, which can be important when establishing a medical history with your primary care physician. Additionally, no referrals are needed to see specialists with original Medicare.
The downside to original Medicare is that it’s not one encompassing plan. You have to enroll in separate components, including Plan D, a prescription drug plan. You’ll also find that basic care for vision, hearing, and dental isn’t covered by Medicare, and that there are no annual out-of-pocket limits for medical expenses.
Medicare Advantage plans do have annual out-of-pocket limits, and they may offer all-encompassing plans that roll all the services original Medicare offers, along with prescription drug plans, and basic hearing, dental, and vision plans, into one neat package. You’ll also have plenty of choices when it comes to Medicare Advantage, because it’s run by private insurers.
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Develop An Income Plan
Youll be more prepared to make wise decisions about your retirement income once you have a specific estimate of your anticipated budget requirements in retirement.
Take time to calculate all of the expenses and financial assets you expect in retirement. Factor in all sources of income that will be in effect once you retire. This includes Social Security, any pensions, investments and your retirement savings.
Once you gauge your expenses contrasted against your income, you will understand how much you need to withdraw per month from your retirement account.
Being Prepared Can Make All The Difference Here’s How You Can Enter Retirement With Your Finances On Solid Footing
This article was updated on February 5, 2018, and was originally published on June 4, 2016.
Retiring comfortably, and on your own terms, is the quintessential American dream. Unfortunately, this dream is seemingly becoming tougher than ever to achieve.
According to a survey commissioned by Wells Fargo and conducted by Harris Poll in 2014, the median middle-class household had just $20,000 saved for retirement. This also includes the 34% of respondents who weren’t contributing anything to retirement savings plans, and were instead choosing to simply work longer or save later. You could arguably say that Americans, as a whole, may have a retirement problem on their hands.
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To Retire At 60 Youll Need More Saved To Bridge The Gap Before Medicare
If your spouse is still working, you can probably get health insurance there. If not, paying for medical insurance until Medicare at age 65 may be prohibitive. In general, early retirees have five options for health insurance before Medicare:
COBRA coverage generally only lasts for 18 months if you retire early. If you retire at 60, you need five years. Obamacare exchanges are usually more affordable than private insurance, but its still really expensive. The cost also varies by state.
According to this calculator from the Kaiser Family Foundation, two 60-year-old adults in Boston, MA would pay a premium of $1,237 per month in 2021 for a silver plan, assuming theyre not eligible for subsidies. For five years, assuming no cost increases, thats nearly $75,000. In reality, medical costs tend to increase faster than inflation.
Saving Vs Investing For Retirement
The previously mentioned Schwab survey points out that most people think of themselves as saving for retirement. At Investment U, we believe that this is actually the wrong way to think about it.
The right way to think about it is to look at yourself as investing in your retirement. Because the large majority of your retirement savings is not going to come from squirreling away portions of your income in a bank savings account.
Its going to come from investing.
And when I say investing, I mean in a variety of different assets and accounts. After all, investing doesnt just mean day-trading stocks although that certainly counts, too.
But the basic point remains the same: The way you are going to have enough money to retire is not merely by saving money, but by investing. Investing with knowledge, insight and wisdom.
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How Debt Affects Your Retirement Planning
The first step to creating a safety net is learning the difference between good and bad debt and how to cut down on your bad debt.
The average Australian household owes roughly $250,000 in debt.
This debt comes in the form of:
- Investor debt e.g. investments like rental properties
- Personal debt for purchases
- Student Loans
All debt, however, is not created equal. There are actually two types of debt: good debt and bad debt.
This debt is incurred as part of a strategy to build long-term wealth. It is usually attached to a revenue generating or equity building asset, such as an investment property or owning your own home. If good debt is not properly managed and it ends up costing you more than your investment yields, good debt may turn into bad debt.
This debt diminishes your wealth in the long-term, it is not attached to a revenue-generating asset and is usually incurred by living beyond your means. Credit cards, for example, are a common example of bad debt that many struggle with.
As you near retirement age, having bad debt weighs on your finances and will ultimately reduce the amount of money youll be able to enjoy once you finish work. If your bad debt is not fully paid off by the time you leave your job, a significant portion of what would have been your post-work income will end up going towards paying off debt from many years ago. This, in turn, will affect the lifestyle youll be able to enjoy in retirement.
Retirement Calculator: How We Got Here
Our free calculator predicts your retirement nest egg, and then estimates how it would stretch over your retirement in todays dollars, taking inflation into account. Our default assumptions include:
A 3% inflation rate.
Salary increases of 2% per year.
A 5% rate of return in retirement .
Enter your age, income, current savings and monthly savings rate to see how you’re doing. If you wish, you can enter more details in the Optional settings, such as your expected rate of return before retirement and what you expect from Social Security . You can also fine-tune your retirement spending level, retirement age and more.
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How Much Money Does The Average 60
Heres a scary statistic about having enough saved for retirement: About half of all American households have no retirement savings. At all. That comes to about 40 million households. Its hard to imagine how someone can retire without having any retirement savings.
And its hard to get by on just Social Security alone. After all, the average monthly social security benefit for retirees is $1,354.04. This is like having a minimum wage job.
Furthermore, around 29% of households age 55 and over have no retirement savings. Which means that the problem is not limited to just younger people.
In 2016, the median retirement account balance of people who actually have retirement accounts was about $60,000. However, the median increases by age. The median account balance for someone in the range of 55 to 64 was $104,000.
Also, this looks at just retirement accounts. The number is higher if you take into account total household net worth. For the same age range, the average household net worth is $187,300.
When you take all this data together, the picture becomes clear that the average 60-year-old does not have nearly enough money saved for retirement.
Rule : Desired Annual Retirement Income X 25
This rule follows the 4% withdrawal rate rule. They are pretty much the same, but this is easier to calculate for those who would rather not dabble in fractional math. It infers that in order to meet your income needs in retirement, you want to have at least 25 x your desired annual retirement income.
For example, say you estimate that your expenses per year in retirement are $40,000. You would be expected to save up a minimum of $1 million in retirement savings.
â $40,000 x 25 = $1,000,000
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Create A Retirement Budget
Retirees who have saved up for many years can feel that reaching retirement age means it’s time to enjoy the fruits of their labor. Fair enough, but the risk is that people can go overboard and spend it all in a few years.
To avoid falling into this trap, budget your expenses. Be sure to include new costs you plan to incur, such as extra travel. This will help you make a realistic determination of how easily you can afford some of those future plans.
Once you are no longer working, a budget is even more important, as your income will likely come from your savings, Social Security, and any pension plans you may have.
According to William DeShurko, chief investment officer at Fund Trader Pro: “An easy way to do a budget is to take out your most recent pay stubs. Look at the net pay amount after all deductions have been made. Convert that to a monthly number. Add or subtract amounts that will be different in retirement. Usually, this number doesn’t change much. If anything, it goes up to account for more travel. If you have to budget down to every expenditure, don’t retire. You can’t be cutting it close with a 30- or 40-year period of spending ahead of you.”
Case Study : $2 Million Portfolio With $4000 After
In scenario two, Joe and Mary withdraw $4,000 per month from their $2 million portfolio. This is an increase of 33.33% from case study 1.
This is income they will need above and beyond any other sources such as social security or pensions. The money must last until they each reach age 95.
Here are some additional assumptions for case study 2:
Starting portfolio value: $2 million dollars
After-tax portfolio income per month: $4,000
Retirement age: 60
Retirement start date: January 1, 2021
Retirement time horizon: 35 years
Portfolio mix: 60% stocks 40% bonds
Monte Carlo Simulation shows that the probability of the money lasting through retirement decreases to 87%.
This is not a low probability. But, probability of success decreased from scenario two due to the increase in retirement income drawdown.
Curious about having us help you plan for retirement? You can learn more here. If youâd like to learn more about avoiding big money mistakes in retirement, we provide a selection of powerful ebooks, guides, and checklists.
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Withdrawal Plan Firmly In Place
The perfect retirement strategy also needs to take tax implications into consideration. On top of saving and investing, you’d like, in theory, to keep as much as possible of the money you earn via wages, Social Security, and/or your retirement accounts. The optimal way to do this is to have a clear withdrawal plan in place prior to retiring.
What should you know? The key factors to keep in mind include how much you plan to withdraw from your retirement accounts each year, as well as what your federal and state tax implications might be. For instance, all 50 states seemingly have different rules regarding what sort of retirement income is taxable. Some states give retirees a pass, while other states have no income exemptions when it comes to taxing retirement income .
Additionally, withdrawing money from a tax-deferred retirement account, such as a 401, can directly impact how much you owe the federal government come tax time. While it might seem like fun to take out large sums, it could come back to bite you in April every year. Having a withdrawal plan which works hand-in-hand with your retirement budget will allow you to optimally withdraw your money so as to avoid paying more in taxes than you need to. This helps your money stretch even longer.
Planning Your Superannuation Strategy
Youve probably heard the term superannuation or super, its more common abbreviation and have a general understanding of how it works and what it has to do with retirement.
Beyond that, however, the average Australian likely doesnt know much about the details of super. As super forms a critical part of a successful retirement plan, its surprising how its often treated as an afterthought.
But super doesnt have to remain a mystery. In fact, there are a number of financial strategies that can be utilised to ensure that youre making the most of your super to achieve the post-work future youve always dreamed of.
One of these strategies includes voluntarily contributing to your super, which offers a number of tax advantages particularly for those earning a higher-than-average income. Voluntarily contributing to your superannuation fund is arguably one of the most effective ways you can ensure youre on track to achieve your ideal post-work lifestyle. Think of it like this: by voluntarily investing in your super through concessional and non-concessional contributions you are effectively lowering your tax obligations in the present while investing in your future by bolstering your income once you retire.
After all, the concept of making the most of your super is simple: to pay less tax in the present while helping you to live out your dream future.
With this goal in mind, here are a few of the most common questions weve helped our clients to answer:
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