What Matters Most Is Being Prepared Financially
When is the right time to retire? Its a question that depends on your personal needs and circumstancesnot to mention your plans for what you’ll do instead. We’ve all had days when we’re prepared to hand our boss a resignation letter and lead the good life of a retiree. While leaving the workforce early might sound like paradise, it can be a big mistake if you’re not financially ready to live without a paycheck. Here are some of the pros and cons of quitting your job at different ages.
Social Security: Know How Much To Expect How To Decide When To Take It And How To Increase Benefits And Avoid Reductions
It’s vital to know how much income you can expect from Social Security, as for most people, it will make up a big chunk of your retirement income. For context, know that the average monthly Social Security retirement benefit check was recently $1,478, or about $17,700 per year. Clearly, that’s not going to be sufficient for most people, and that’s why you need to start planning, saving, and investing as early as possible. That’s just an average, though — if you earned an above-average income over your working life, you’ll collect more.
The maximum benefit for those retiring at their full retirement age was recently $3,148, or about $37,776 per year.
To get a better idea of how much you can expect to receive, head over to the Social Security Administration website and set up a “my Social Security” account. Once you do, you can click in any time, to see the SSA’s record of your earnings, year by year, and to see its estimate of your Social Security benefits, based on when you claim them. You can claim your benefits as early as age 62 and as late as age 70, with your checks getting smaller if you claim early and larger if you delay. But remember that if you start collecting your Social Security benefits at age 62, your checks might be on the small side, but you’ll get many more of them than if you start at age 67 or 70.
A little coordinating with your spouse, if you’re married, can also boost the total sum you both collect from the program.
How To Retire Early Budget
Knowing what you spend now and what you might spend in the future is critical for retirement and especially if you want to know how to retire early.
Gilbert recommended this: Weve never really been big budgeters. For a year, we tracked every single penny we spent because we wanted to know as realistically as we could, what our spending was. And then we adjusted it for how we thought things would change in retirement, etc
The NewRetirement Planner allows you to create a really detailed budget now and document how those numbers will change in the future. The system even enables you to enter necessary spending as well as nice to spend amounts. It is fun and easy to think through how your spending will change over the rest of your life in over 70 different categories.
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Cut Down On Your Monthly Costs
By regularly reviewing the areas where you spend the most money, you can determine where to cut back to have a greater monthly cash flow in retirement. This could mean cutting back on eating out, expensive purchases or extravagant vacations. In an email to Annuity.org, Timothy Iseler of Iseler Financial LLC suggested:
I recommend a one-month spending fast, during which all expenses except the essential like housing, utilities, groceries, insurance premiums, and debt payments are paused. A month should be enough time to know which discretionary expenses will be easiest to control and highlight which others are most important.
Not only will you find that you have a better idea of what retirement will look like with the amount youll have, but youll also see which expenses are easier than others to eliminate.
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Are Trusts Worth It
People usually set up trusts so they no longer legally own their house or other assets, but can continue to use and enjoy them as beneficiaries of the trust. The most common types of trusts used by retirees are family trusts and funeral trusts both are worth exploring thoroughly beforehand to make sure they work as you need them to.
Do You Want To Retire At 55
Im often asked, how much do I need to retire at 55? or can I retire at 55?
Retiring at 55 is a real possibility for some people. To retire at 55 is a goal that many people share, it allows you to enjoy life whilst you are still young, fit and healthy.
Whilst early retirement isnt for everyone, anyone can do it. If you want to retire at 55, youll need to know how much do you need to retire at 55? What is a good pension pot at 55? And will it give you the retirement you want?
This article will show you how much you need to retire at 55. It covers:
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Prepare For The Soft Side Of Retirement
Gilbert emphasized that it is really important for people to prepare for their life after early retirement, not just their financial life after early retirement.
He said, Its really important for people as theyre getting close to what I call the starting line, that they do really spend some introspective time talking about that or thinking about it, talking with their spouse. Because the research says, its the people that do the most amount of time planning for the soft side that have the best transitions into retirement.
Its been proven and the risk of depression goes up 40% in retirement, big numbers. But the way you avoid that is by increasing the amount of time that you prepare for it before retirement. And thats really all the soft stuff. So thats where our focus was and it worked out well for us.
Learn more about retirement and depression.
Get Your Health Insurance In Order
It can be easy to take workplace healthcare coverage for granted after having it for decades. But when you retire, especially when you retire early, it involves a bit more work on your part. If you want to retire at 55, you have another 10 years before you reach the Medicare eligibility age.
Without Medicare, you could be taking a huge risk by going uninsured. You should check whether your employer can cover you into retirement. You may also be covered by your spouses insurance. There are a few possible routes you can take, but its important to have it laid out before you retire. That way you can correctly budget for the costs of healthcare.
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Stay On Track For Retirement By Knowing How Much You Need To Save By What Age
A key part of retirement planning is to answer the question: How much do I need to retire? The answer varies by individual, and it depends largely on your income now and the lifestyle you want in retirement.
Knowing how much you need to save by age can help you stay on track and reach your retirement goals. There are a few simple formulas that you can use to come up with the numbers.
Boosting Your Retirement Savings
Listening to the conventional wisdom on retirement savings can only get you so far. However, youll have to step it up a notch to reach your retirement goals by 55. Of course, the rate at which you can start saving will vary depending on how much you already have saved, your age and how much you think youll need in retirement.
You dont have to double your savings rate, necessarily. For many, thats simply an unrealistic possibility. Its important to build your savings by contributing as much as you can when you can. In addition, try to seek out a high-yield savings account at a bank that works for you. Plus, dont forget that youll have access to Social Security benefits when you retire.
The other side of saving for retirement comes down to making solid investments. When it comes to investing, make sure your risk tolerance is suitable for where you are in life. For example, the younger you are, the more aggressive you can be with your investments. An aggressive portfolio might include a majority of stocks at various market capitalizations, as well as a handful of fixed-income securities and cash allocations.
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Start With Your Goals
Your retirement plan should be based on your specific needs and goals. Use the statements below to help clarify the retirement thats right for you.
I plan to retire when Im ________ years old.
Ill need about $________ a month for expenses.Use our budget planner to add up your expenses, including needs , wants and wishes .
Everyones situation will be different. But a safe approach is to plan for the same income you have today. Keep in mind that some costs are likely to decrease after you retire, while others may increase.
I need my retirement money to last about ________ years. Most healthy people should plan for living until theyre 95. If you retire at age 65, this means youll need your money to last about 30 years.
Best Time To Retire For Tax Purposes
The best time to retire for tax purposes in Australia is largely determined by superannuation rules. In saying that, the level of retirement income you need will also be a consideration. This article will assume that you have adequate funds to retire and are simply seeking the best time to retire for tax purposes. Retiring in Australia has many definitions, both legally and practically. Retirement can mean stopping work, being able to access superannuation or being eligible for Centrelink Age Pension payments. Each person has a different interpretation of the word retirement. So, taking all of this into account, when in the best time to retire for tax purposes in Australia?
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Married Couples: Play Retirement Account Matchmaker
The wisdom of taking advantage of a company match on the 401 is well established — but think about how that power is accelerated if a working couple does it with two such company matches. “If your employer has a matching contribution inside of your company’s plan, make sure you always contribute at least enough to receive it,” said Kevin J. Meehan, regional president-Chicago with Wealth Enhancement Group. “You are essentially leaving money on the table if you don’t.”
Select Your Retirement Investments
Retirement accounts provide access to a range of investments, including stocks, bonds and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk.
Generally, the idea is to invest aggressively when youre young, and then slowly dial back to a more conservative mix of investments as you approach retirement age. Thats because early on you have a lot of time for your money to weather market fluctuations a few bad years wont ruin you, and your nest egg should benefit greatly from the stock markets history of long-term growth. Investing for retirement evolves alongside you as you change jobs, add to your family tree, endure stock market ups and downs and get closer to your retirement due date.
Your investments don’t necessarily require constant babysitting. If you want to manage your retirement savings on your own, you can do it with just a handful of low-cost mutual funds. Those who prefer professional guidance can hire a financial advisor.
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However, if you have a defined benefit pension you might need to give up pension to take a lump-sum payment. Make sure you check this is the best value option for you.
If youre not sure, you might want to get help and guidance from us or get regulated financial advice.
How To Get Started
With some of these retirement plans , youll have access to the plan through your employer. So if your employer doesnt offer them, you really dont have that option at all. But if youre self-employed or earn any income, then you have options to set up a retirement plan for yourself.
First, youll need to determine what kind of account youll need. If youre not running a business, then your option is an IRA, but youll need to .
If you do have a business even a one-person shop then you have a few more options, and youll need to come up with the best alternative for your situation.
Then you can contact a financial institution to determine if they offer the kind of plan youre looking for. In the case of IRAs, almost all large financial institutions offer some form of IRA, and you can quickly set up an account at one of the major online brokerages.
In the case of self-employed plans, you may have to look a little more, since not all brokers have every type of plan, but high-quality brokers offer them and often charge no fee to establish one.
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Track Your Progress And Hone Your Strategy
Planning for early retirement isnt a set-it-and-forget-it experience. A lot can change, and youll need to continually track your progress and hone your early retirement strategies.
To stay on top of your finances, use a budgeting app, such as:
You may also need to tweak your early retirement plan.
To retire sooner, you could decide to lower your retirement lifestyle budget. In this case, you may not have as much money in retirement, but you could retire earlier.
On the other hand, you could decide to retire later than you had hoped. Although, youll have to work longer, youll have more money when you retire early.
How Much Money Youll Need To Retire
Most people can now expect to live well into their eighties. This means that if you stop working at 65, you’ll need retirement income for 20 years or more.
If you have a partner, talk to them about your expectations, future plans and the lifestyle you want.
See how much super you need to estimate how much super youll have and what youll need to retire.
Estimate your income from super and the Age Pension.
Creative Retirement Tax Strategies
The number of effective tax-saving strategies is only limited by your creativity. There are more effective strategies, but I believe these are the 6 most effective that almost anyone can do.
Your goal is to receive the cash flow you need for your desired retirement lifestyle, while paying the least possible tax on it.
You can effectively decide your own taxable income. You can plan to be in low tax brackets, avoid the clawbacks, and possibly qualify for GIS.
You have many tools to use in creating strategies. Your tools include your mix of RRSPs and TFSAs, deciding how much to withdraw from your RRIF, TFSA and investments each year, investing tax-efficiently for deferred capital gains or dividends, using tax-efficient withdrawal strategies such as SWPs, using T-SWPS to defer capital gains, deferring CPP and/or OAS to age 70, starting CPP early at age 60, deciding on the best time to convert your RRSP to RRIF, accessing your home equity, contributing to your RRSP or cashing in some RRSP before you retire, and the 8-Year GIS Strategy.
If you had a salary all your life, you may have had limited tax deductions or tax saving strategies. When you retire, it is completely different. You have many options, especially if you plan for them before you retire.
This article originally appeared in the January 2018 issue of the Canadian MoneySaver .
Is It Better To Resign Or Retire
When you are coming up to the end of your career there are several options in front of you. It is important not to get too caught up in thinking about how you would like to spend your time post-work before you have settled on how you want to leave the workforce.
There are two major options, while they might seem very similar there are some very distinct differences that you should be aware of. This article will help you differentiate between resignation and retirement so you can find the best option for you. By the end, you will hopefully have a better idea of which option is the most beneficial and well suited to your situation.
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