Most Americans look forward to the day they can retire.
Many of us spend a lot of time fantasizing about the day when we finally walk away from the demands of our job and begin to enjoy the second half of our lives.
Choosing when to leave the workforce will be one of the most important decisions you will make in your lifetime.
So how will you know if you are really ready for this next step in your life?
TIMES ARE CHANGING
Like everything else in the world, retirement has changed in recent years.
Some of the more pertinent changes are:
- Up until the 1980’s the majority of companies in the United States offered pension plans that guaranteed a monthly dollar amount. Today, most companies offer defined contribution plans.
- Early departure is becoming a common occurrence – often by choice but many times due to health or job cuts.
- Longer life spans nowadays mean that we will be spending more of our lives not working than at any other time in history.
- Since half the workforce is now made up of women, retirement is no longer geared for men only.
Because of these changes more information is needed to help us plan for an emotionally satisfying and financially secure future.
MORE THAN MONEY
While many of us have financial goals that we have set for our future, investing is only one step in this process.
For instance, the following questions must be answered before any serious plans can be made:
- When will I be ready?
- Where would I like to live?
- What will I do with my time?
The answers to these questions will help you realize what is most important to you and help you to decide if you are ready for the next part of your life’s journey.
WHAT WILL YOU DO?
When you think about leaving your job have you also considered what you will do with all this free time?
Many of us want to be able to spend our time traveling and seeing all the places we never got the chance to enjoy while we were working.
Some of us want to spend more time doing volunteer work now that our days are free.
Many dream of never working another day in their lives, while others dream of starting a whole new career.
These are some of the decisions you will need to make in order to prevent boredom.
Top Reasons To Retire
So what are the top ten reasons to retire?
There are many reasons why we might want to retire from the work place, and every top ten list is different. However, they all have the same basic idea – “I am ready to stop working!”
The Top Ten Reasons
Here are ten of the most prevalent reasons:
- The Top Ten Reasons
- Here are ten of the most prevalent reasons:
- Desire to spend more time with family without having to fit them in around a busy work schedule.
- Freedom to choose with whom we associate.
- Ability to do other things. Retirement gives us the freedom to do what we want, when we want. It is easier to be more spontaneous.
- Opportunity to become involved in volunteer work, be a mentor, and to give back to society.
- Poor health or family health issues. After retiring, many people experience improved health due to increased physical activity, less stress, and a more relaxed life style.
- Laid off or fired.
- Company offered financial incentives to retire.
- Spouse retired.
- No longer enjoy work, efforts not appreciated, tired of work, or unfavorable changes in work environment.
- Financially able, not getting any younger, and yearning to enjoy life now.
This is a basic list of reasons to retire. You may see your personal reason(s) here, or you might have a unique situation which prompts your decision.
However, before making any decisions, you should make a list of all the reasons supporting your desire to retire and give each a considerable amount of thought.
Social Security and Retirement
Will Social Security and retirement benefits be an adequate income during your retirement?
For years the question of whether Social Security would be around or not has plagued all of us. After the stock market crash, which effected 401k investments, this question is being asked more and more often by baby boomers.
For now, it looks like Social Security benefits will be around in one form or another. Congress will probably continue to raise the full-retirement age and continue to freeze the cost-of-living increase, but there will still be Social Security.
So let’s get serious about what you can expect and how to ensure that you get what you are entitled to.
Overview of Social Security and Retirement Benefits
Social Security provides a lifetime retirement benefit in the form of a monthly check to individuals who meet certain requirements.
- You must have 40 credits for covered work. This is usually satisfied by having at least 10 years in which you had earnings that were subject to social security tax or self-employment tax.
- You must be over 62 years of age.
- You must apply for the benefit. It is not automatically given to you.
- If you are a spouse, you can also qualify:
- With spousal benefits, based on your husband’s or wife’s work record (normally half of the spouse’s full benefit).
- With a divorced spouse’s benefit (providing you were married at least 10 years, your former spouse is receiving Social Security or is more than 62 years old, you are not remarried, and you have been divorced for at least two years).
- With widow’s or widower’s benefits (providing you were married at least nine months and did not remarry before you turned 60).
- With divorced widow’s or widower’s benefits (providing you were married to your ex-husband or ex-wife at least 10 years, are 60 or older, and married your present spouse before age 60).
Social Security and Retirement Age
Your full retirement age determines when you can receive your full retirement benefit.
|Year of Birth||Full Retirement Age|
|Born before 1938||65|
|1938||65 and 2 months|
|1939||65 and 4 months|
|1940||65 and 6 months|
|1941||65 and 8 months|
|1942||65 and 10 months|
|1943 thru 1954||66|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
There has been recent talk of raising the retirement age to 68 – we will just have to wait and see what Congress decides to do.
Early or Later for Social Security and Retirement
Retirees can start collecting benefits at age 62. However, the benefits will be at a reduced amount for the rest of his or hers life. But sixty percent of people do choose to take their benefits early.
Whether to receive your Social Security benefits early or later is purely a personal choice.
What Happens If You Choose To Draw Your Social Security Benefits At 62?
You will collect only 80% of what you might have gotten had you waited three more years (if 65 is your full retirement year). While this sounds like a lot of lost money, the reality is that it will take a long time – even at full benefits – to make up for the three years of checks you might have been collecting.
Also, if waiting to draw your Social Security checks for three years means drawing on your investments, you are probably better off taking the checks right away and leaving your investments intact.
What Happens If You Wait
By waiting to draw on your Social Security benefits until your full retirement age, you will receive 100% of the benefit. So, if you have other income besides investments to live on, it would probably be best to wait.
You can also choose to begin receiving your benefit later than your full retirement age. By doing this you will receive an increased benefit amount.
Reasons to wait:
- If you have other sources of income besides investments to live on.
- If you think you will go back to work from time to time.
Who Doesn’t Qualify For Social Security?
Many individuals who were employed by state and local governments and school districts do not receive Social Security benefits. Most of them receive pension income from state pension programs.
How To Apply For Social Security Benefits
There are three ways to apply for your Social Security benefit:
- You can go online to the Social Security website to apply.
- You can apply by phone. The number is 1-800-772-1213.
- You can go in person to the local Social Security office.
Check with Social Security
This is not a complete guide to Social Security and Retirement benefits. For more information go to the Social Security website. (www.socialsecurity.gov/)
How to Retire Early
Are you wondering just how to retire early?
Surveys show that more than half of today’s workers between the ages of 30 and 50 plan to leave the work force before they are 60.
The prospect of a more fulfilling life is more appealing to many people than the financial security that is offered by their job.
So, could you quit your job soon?
It is a possible dream. But you will probably have to make some major changes in your lifestyle.
HOW TO RETIRE EARLY BY PLANNING NOW
If you haven’t already done so, make a plan.This is the first step to reaching your goal.
Where do you start?
Ask yourself what is your dream retirement lifestyle?
If you really want to retire from the workforce early, keep your expectations reasonable and modest.
Answer the following questions:
- Where do you want to live?
- How much will it cost?
- What is your time frame for retirement?
Make a detailed spreadsheet including all anticipated expenses and retirement income. This exercise will be a useful tool to determine progress toward financial freedom.
There are many websites with retirement planning tools, such as www.etrade.com.
RETIRE EARLY BY SAVING NOW
Invest as much of your income as possible. Try to save a third of your take home pay.
Save first and then budget the remainder for your living expenses.
Be aggressive but wise with your savings and yes, the market could tank. But without some risks, it will take you longer to reach your retirement income goal.
If you have a 401K or IRA, you will want to contribute the maximum during your working years.
However, while a 401k and Roth IRAs are good ways to save money, remember that there are stiff penalties for withdrawing any money before the age of 59 1/2.
So, if you are planning to retire before this age, these may not be the best places to put the bulk of your money.
Save any extra money you receive such as raises and bonuses.
Think about getting a part-time job and adding this money to your retirement savings accounts.
You might even consider changing to a job with a pension plan or start a home-based business now that can grow over time.
Depending on your age now and the age you are wanting to retire, remember that you will need savings and investments lasting for thirty or forty years or more.
RETIRE EARLY BY LOWERING YOUR EXPENSES
Many of us dream of a simpler life, with fewer responsibilities and possessions.
If you really want to retire early, then now is the time to start living on less. By reducing and simplifying your life, your dream of early retirement can become a reality.
Here are a few ways to cut your expenses now.
Where You Live
Do you really need that large house with its large mortgage or would a smaller house be just as comfortable?
If you sell the larger house, you may be able to pay cash for the smaller house and eliminate a mortgage payment.
Plus, you will be paying less on upkeep, taxes, and insurance.
Most surveys indicate that the majority of people want to stay put when they retire – often because of family and friends. However, moving to a cheaper area could mean the chance of an earlier retirement.
Cut Out Debt
Below are a few ways to help cut out debt and start living within your means:
- First, reduce your transportation expense. Try to maintain just one vehicle. If necessary, pay off any amount owed to eliminate monthly car payments and reduce your auto insurance bills.
- Pay off all credit card debt. Start living within your means.
- Buy cheap! Look for sales, save and pay cash for big items, do your own repairs when possible, and consider using the bartering system.
- Pay attention to the little things you buy. Stop buying that can of soda from the vending machine at work, start carrying your lunch to work, and start eating your meals at home.
If you really want to retire early, then now is the time to start eating healthy and exercising regularly.
This does not mean you have to join a gym. All you need is a good pair of walking or running shoes and somewhere safe to walk or run.
If you are too young for medicare don’t allow yourself to be without insurance-not even for a day. One serious illness or an accident can expose you to financial ruin.
Most early retirees can get insurance through:
- An individual policy
- An extension of employee health coverage with COBRA
- A group policy with an association
- A student plan with a college or university
- A catastrophic policy with a large deductible
- A short-term plan
- Through the Affordable Healthcare
How to retire early with additional health cost savings:
- Negotiate costs with your doctor. Many doctors will give discounts for cash payments.
- When you need a prescription filled, ask your doctor for samples or for generic drugs.
- Use Direct Access laboratories for any lab work. You can save up to 80% on your costs.
- Go to a dental school for any dental work.
- Order your glasses from websites like Zenni.
STILL NOT SURE IF YOU CAN RETIRE EARLY?
For two or three years prior to retiring, live on your retirement budget as a test. See if any adjustments are necessary.
It is possible to retire early as long as you keep your eye on the goal!
We did! You can too!
Average Retirement Income
What is the average retirement income that you will need?
Of course, the amount will be different for everyone. It all depends on your expected expenses and the lifestyle you desire.
Many financial advisers recommend that you will need 70% to 80% of your pre-retirement income to maintain your current lifestyle.
However, your income amount can actually be considerably lower, if you are planning to pay off your home mortgage, automobile(s), credit cards, and any other pre-retirement debt. Also, children living at home or children that you are still supporting financially is another expense you (hopefully) won’t have during your retirement years.
How Much Money Do You Need
So, how do you figure out the average retirement income needed to retire on?
- First – Determine how much you spend now. Pull out your last year’s federal tax return. Subtract any money you put into additional savings or gave away. Don’t worry about any money that you contributed to a tax-deferred retirement plan. It will already have been subtracted. This is the current annual amount that you are spending.
- Second – Subtract any expenses that you won’t have by the time you retire. Add up any expenses you are planning to eliminate by the time you retire. For example, your mortgage and credit card payments. Subtract this total from your current annual expenses. This is the amount that was found in the first step.
- Now – Add up any new post-retirement expenses that you expect to have. Some examples of post-retirement expenses are: health care expenses, travel expenses, etc. Add this total to the amount you got after subtracting step two from step one.
This should give you a good idea of the average retirement income you will need.
Where Will You Get The Money
There are three traditional sources of income:
- Social Security – You can estimate this amount by reviewing your Social Security statement.
- Pensions and annuities – Your plan provider or administrator can assist you with these amounts.
- Periodic Withdrawals From Savings – Many retirees use the safe withdrawal system where they withdraw 4% to 5% from their account. Hopefully, this is less than what the account is earning annually in interest.
Total the income amounts that you expect to receive. If you expect to have other sources of income, be sure to include these in your total.
Now you can subtract this total from the total you got when figuring your total expenditures.
This is your annual income gap. If you divide this number by 12, you will have your monthly income gap.
Hopefully, the gap is not that much. But large or small, how do you close the gap?
You have a few choices.
- Save more before your retirement.
- Work past your hoped for retirement age
- Think about a different lifestyle during retirement.
- Work part-time during retirement.
A Secure and Happy Retirement
You now have a fairly accurate picture of the income that you will need. Now it is up to you to decide if you are financially ready for retirement.