Savings Needed To Retire At 62

Date:

What You Need To Consider If Retiring At 62

Average Retirement Savings by Age 60. Are You Almost Ready to Retire?!?

To retire at 62 you need to know what you want out of life and have a plan in place. Once you have your plans laid out, it is much easier to determine how much money you will need.

Retiring early generally means that you will need at least twice as much saved up in order to keep your cost of living the same. Retiring at 62, or 52, doesnt mean you cant maintain a similar lifestyle to retirees who retire at age 65 or older, it just takes a little extra work on your part in order to make sure that you are financially secure.

Here are some key things to consider when retiring at 62:

Extra Income Can Be Hard To Come By

Working in retirement might not be as simple as you think. While 74 percent of workers plan to work for pay in retirement, according to the EBRI study, just 27 percent of actual retirees reported working for pay. Even part-time work can be a challenge. One thing early retirees dont seem to realize is that if they are planning on doing traditional part-time work while retired, those jobs require a commitment to a schedule that sometimes is not very flexible, says Leslie Beck, a certified financial planner in Rutherford, New Jersey. This can cut into other retirement goals such as travel or visiting with family. I have had retirees surprised by the inflexibility of part-time work.

If you figure youll instead fill the income void with Social Security, remember the earliest you can usually claim retirement benefits is age 62. Even then, youll only receive partial benefits. For anyone born in 1960 or later, the full retirement age, when you are entitled to 100 percent of your monthly benefit, is 67. By claiming early at 62, the benefit amount is reduced by 30 percent.

5 questions to ask before retiring early

  • Can I really afford to stop working?
  • Do I need to get a part-time job to make ends meet?
  • How will I get health insurance?
  • What will I do to occupy my time?
  • Are my plans in sync with my spouse/partner’s?

Tapping Your Nest Egg Early Can Be Costly

If you retire before 59 1/2, you’ll usually pay a 10 percent early withdrawal penalty from most tax-deferred accounts, such as traditional IRAs and 401 plans. There are some options for getting IRA money before 59 1/2, but it’s tricky and can cause major penalties if done incorrectly, says Matt Stephens, founder of AdvicePoint in Wilmington, North Carolina.

And unless you have a Roth IRA, which is funded with after-tax contributions, you’ll owe income taxes on the amount you withdraw from traditional accounts funded with pretax contributions. If, for example, you withdraw $20,000 from an IRA before age 59 1/2 and are in the 15 percent federal tax bracket, you’ll pay $5,000 in taxes and penalties, leaving you with $15,000.

You May Like: Newell Retirement Apartments San Antonio

Social Security Pensions And Other Reliable Income Sources

The good news is that, if you’re like most people, you’ll get some help from sources other than your savings, such as your Social Security benefits. For most people, Social Security is a significant income source.

But the percentage of income that Social Security will replace is typically lower for higher-income retirees. For example, Fidelity estimates that someone earning $50,000 a year can expect Social Security to replace 35% of their income. But someone earning $300,000 a year would have a Social Security income replacement rate of just 11% on average.

If you aren’t sure how much you can expect, check your latest Social Security statement, or create a my Social Security account to get a good estimate based on your work history.

If you have any pensions from current or former jobs, be sure to take those into consideration. The same goes for any other predictable and permanent sources of income — for example, if you bought an annuity that kicks in after you retire.

Continuing our example of a couple that needs $8,000 in monthly income to retire, let’s say each spouse is expecting $1,500 per month from Social Security, and that one spouse also has a $1,000 monthly pension. This means that, of the $8,000 in monthly income needs, $4,000 is being taken care of by sources other than savings.

So, in summary, you can estimate the monthly retirement income you need to generate using this formula:

Can I Legally Retire At 55

Retirement Series: Already 50? How To Retire At 62

Theres nothing in the retirement rulebook that says you cant retire at 55 years old. In fact, some members of the FIRE movement aim to retire as early as 40. So its perfectly legal to retire in your mid-50s if thats your goal.

But its important to keep in mind that retiring at 55 isnt the norm for most people. If youre going by the normal retirement age prescribed by Social Security, for example, that usually means waiting until youre 66 or 67. And some seniors may choose to delay retirement to their 70s or simply keep working indefinitely.

Read Also: Ways To Generate Income In Retirement

Retirement Can Be Tough On Couples

“Retirement is a major life transition, and you have to be patient with yourself and your spouse, says Patti Black, a certified financial planner in Birmingham, Alabama. Most retired couples do not look like those pictured in ads and commercials. You’ll have to decide how work around the house will change. Will you really share cooking, cleaning and yard work? And do you honestly want to be together 24-7, particularly if you downsize to a smaller home?

These decisions can have serious consequences for a marriage. Gray divorce, or divorce after age 50, has doubled since 1990 while declining across all other age groups, Black warns. And it is most often the wife who asks for divorce after age 50.”

John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter forKiplinger’s Personal FinanceandUSA Todayand has written books on investing and the 2008 financial crisis. Waggoner’sUSA Todayinvesting column ran in dozens of newspapers for 25 years.

Also of Interest

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?

You May Like: Fidelity Non Prototype Retirement Account Application

Tax Considerations For Retirement

Any money you’ve set aside in tax-deferred retirement accounts plans or traditional IRAs but not Roth IRAs) will be taxed as ordinary income any time you make a withdrawal. You’ll also need to take required minimum distributions each year once you reach age 70½ or age 72 . Again, RMDs do not apply to Roth IRAs however, with IRAs and their RMDs, you won’t necessarily get to choose how much money to access once you’re in your 70s.

Many retirees are also unaware that up to 85% of their Social Security benefits could be taxable, depending on their total annual retirement income. This is why it’s vital to calculate your tax burden in retirement so you’re not counting on money that you may actually owe the IRS.

The exact financial situation required to retire comfortably at 62 varies from person to person. Figuring out what might work for you means determining how much you have saved, then factoring in taxes, health care costs and the costs of waiting for Social Security. You might also consider speaking with a qualified financial adviser to help determine a retirement savings strategy that fits your overall financial goals.

How Much Should I Have Saved For Retirement By Age 60

Average Retirement Savings by Age 62 – Entering the Retirement Years

This is a difficult question because it depends on many things, such as your current income, expenses, and retirement savings goals. For example, if you want to retire at age 60 and receive $100,000 each year for the rest of your life, you will need $3.8 million saved in an annuity. This money will give you a guaranteed monthly income for the rest of your life. Plus, any leftover money in the account will be passed down to your beneficiaries when you die.

Read Also: 55 Affordable Retirement Communities Florida

Reason #: Retire Early If You Are Ready To Simplify

Living more frugally is not a necessity in retirement, but if you think that you can simplify your spending, then you can probably retire at 62 or earlier if you really want to.

When you retire, you have the opportunity to prioritize what is important to you and let the rest slip away. Prioritization can help you reduce your spending levels. And, this can be incredibly freeing.

Social Security Benefits And Retiring At Age 62

If youre considering retiring at 62, its likely that Social Security is one of your primary concerns. Thats because 62 is the first year youre eligible to receive Social Security benefits, but your benefit will be lower than if youd waited longer to start receiving those benefits.

Normally, youd need to reach your full retirement age, which for most people is 66 or 67, to qualify for the full monthly benefit amount. And to get the largest possible benefit youd need to wait until age 70. Taking benefits at age 62, or at any time between 62 and your full retirement age would reduce your benefit amount.

The amount of the reduction depends on the year you were born. For example, if you were born in 1960 or later, taking Social Security benefits at age 62 would reduce your monthly benefit by 30%. If youre married and spousal benefits are also being paid, those benefits would be reduced by 35%. So for example, if youre anticipating a $1,000 monthly Social Security payment and your spouse is expecting $500, your benefits would be reduced to $700 and $325, respectively. This Social Security calculator can tell you what you can expect to receive, based on your age and when you begin taking benefits.

Don’t Miss: Retirement Homes In West Palm Beach Florida

Reason #: Retire Early If You Want To Stay Healthier Longer

Theres no doubt that working and being active can help you stay healthy much longer than sitting with your feet up. But not all work is good for you sometimes its detrimental to your health.

Retiring at 62 from a backbreaking job or one with a disproportionately high level of stress can help you retain, or regain, your good health and keep it longer.

Just be sure to have a plan for being mentally, socially and physically active. Jobs are good for keeping you engaged, but not the only way.

Savings Rates: What’s Enough

How To Retire At 62 With Just Half A Million

While it’s good to have a dollar amount as your long-term savings goal, it’s helpful to focus on how much you should sock away each year.

Ten percent is the historical recommended savings rate. Schwab further refines that to say that if you start in your 20s, you can retire comfortably with a 10% to 15% savings rate. Here’s how a few scenarios could play out for a future retiree.

You May Like: How Much Money Do I Need To Retire In Florida

Spending Drives How Much Money You Need To Save To Retire At 60

Estimating expenses in retirement is difficult. Some outflows contributions) will stop while others , appear. While some investors overestimate retirement spending needs, others underestimate at least one major category: housing. As indicated by the Chase data below, the majority of retirees pay housing costs throughout life as a major expense.

Before getting consumed with your travel budget, recognize that where youll spend money will change throughout retirement. As some costs increase , other expenses decrease.

While expenses will ebb and flow over the years, its most important to monitor spending just before and after retirement. This period is pivotal because retirement savings are generally at their highest levels, making you most vulnerable to stock market volatility.

If retiring at 60 is your main priority, reducing your spending assumptions during retirement might be an acceptable trade-off to make the numbers work.

Longevity is also a major concern for anyone looking to retire early. According to J.P. Morgan, married couples have an 89% chance at least one spouse will live until 80 and almost a 50% probability that one person will live until 90. Keeping fixed costs low and spending in check can help ensure retiring at 60 doesnt leave you destitute later on.

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:

Also Check: Retirement Communities In Nashville Area

You May Like: Digital Alight P& g Retirement Plans

What Are Your Retirement Lifestyle Expectations

Ultimately, how much money you’ll need for your own retirement is very personal, and will depend on your own situation, wants, needs and lifestyle expectations. It may help to factor in your day-to-day spending habits, your recreational activities and hobbies and whether youll be entering retirement debt-free. The following figures are a guide taken from the ASFA retirement standard.4

What Is The Average Social Security Benefit At Age 62

How Long Will $170,000 Last in Early Retirement at 62

The Social Security Administration doesnt publish average data for each specific age it lumps ages 18 through 64 together. However, it does state that someone who had made the maximum contribution throughout their career to Social Security would earn $2,324 per month in benefits it they were to retire at age 62 in 2021. If the same person were to retire at 65, they would earn $2,841 per month.

Recommended Reading: Retirement Communities In Florence Sc

Impact Of Inflation On Pensions And Savings

The amount you get from public pensions, like the Old Age Security pension and Canada Pension Plan, is protected against inflation. This means as the cost of living goes up, the value of your benefit goes up as well.

Not all employer pensions are protected against inflation. Ask your pension administrator or employer whether your pension is protected against inflation.

Personal savings and investments, such as mutual funds or guaranteed investment certificates , are usually not directly protected against inflation. Your savings need to grow by at least the rate of inflation. If not, the amount of things your savings can buy in the future will be less than what they can buy now.

For example, something bought for $100 in 2002 would cost $129.92 in 2016. If your income isn’t protected against inflation, you may have a hard time maintaining your lifestyle in retirement as the cost of goods and services increases.

How Much Do I Need To Retire Comfortably

How much money do you need to comfortably retire? $1 million? $2 million? More?

Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. That means if you earn $100,000 per year, you’d aim for at least $80,000 of income in retirement.

However, there are several factors to consider, and not all of this income will need to come from your savings. With that in mind, here’s a guide to help calculate how much money you will need to retire.

Don’t Miss: 55 Plus Retirement Communities In Texas

Reason #: Retire Early If You Are Ready To Focus On A Financial Goal

Maybe you arent quite financially ready to retire early. Should this hold you back? Absolutely not. Especially if you are ready to focus on a financial goal.

Most Americans are unprepared for retirement and may need to continue working during their 60s and beyond. However, dont let past mistakes of lack of planning and saving hold you back now!

Set a goal to retire early, start analyzing your finances and design a plan to get out of the workforce as soon as you can. The sooner you make an effort to retire early, the sooner you will be able to do it.

The NewRetirement Planner makes it easy to get started. Try different scenarios and find your path to retirement as early as possible.

The Bottom Line On Retirement Savings Goals

Are You on the Right Track for Retirement?

There is no perfect method of calculating your retirement savings target. Investment performance will vary over time, and it can be difficult to accurately project your actual income needs.

Furthermore, it’s worth mentioning that not all retirement plans are equal when it comes to income. Money you withdraw from a traditional IRA or 401 will be considered taxable income. On the other hand, any money you withdraw from a Roth IRA or Roth 401 is generally not taxable at all, which may change the calculation a bit.

There are other potential considerations as well. Many workers have to retire earlier than they planned. For example, about 3 million workers retired earlier than they anticipated because of the COVID-19 pandemic. Even in normal times, older workers often have to retire early due to layoffs, health problems, or caregiving duties. Saving for a longer retirement than anticipated gives you a safety cushion.

Read Also: Best Places To Retire In Japan

Share post:

Popular

More like this
Related

Sign Up For Ssi Retirement

Do Social...

Wells Fargo Retirement Phone Number

Why Does...

How Should My Retirement Portfolio Be Balanced

Candidates For...

Empower Retirement 401k Loan Repayment

Fidelity Vs...