When Can I Retire?

The better question is when can I retire comfortably. The answer may depend on how early you started planning for retirement. A 401K is only as good as the amount you put into it. If you’re counting on your stock portfolio – have you checked it lately? How much debt are you carrying?

These are a few of the factors affecting your retirement timeline. Unless something unforeseen happens to force your hand.

Average Retirement Age

The average retirement age is 62, which is also the earliest age to collect Social Security. You’re entitled to them if you’re willing to take a 30% cut in the benefit check.

Most working Americans expect to retire from their jobs at 66. That expectation doesn’t align with reality. The majority of workers – 81% – left their jobs long before reaching that age. Many younger people have difficulty envisioning themselves being unable to work. They tend to spend more than save.

The harsh reality is that 48% of people retired earlier than planned. Often, it’s an unexpected health issue, disability or a family member who requires care. Then there’s the impact of layoffs and downsizing. Older workers who lost jobs during the 2008 recession are under-employed, if they have jobs at all. As the cost of healthcare rises, the value of age and experience has shifted.

No work, no paycheck. Secretary or doctor, the bills keep coming.

Do You Have a Plan?

There are tons of financial advisors looking to sell you a retirement plan. You can benefit from their advice, but do you know what you should be looking for? It’s better if you start with a plan of your own.

Here’s a super simple way to see where you’re starting from.

  • Pull together everything you have put away for retirement. Total it up.
  • Find all your bills. Total them up for a month.
  • Imagine you lost your job, effective immediately. No more paychecks, no severance.

Now divide your monthly bills into your retirement funds. How long would you last? The reason age is such a big factor in retirement is because people worry they may outlive their money.

We’re not trying to imply this is anything more than a hypothetical scenario but it’s easy to do. And it’s the wake up call too many people need.

Steps to Take

These are the some basics to maximize your retirement:

  1. Max out your 401k contributions. Have as much as is legally possible yanked out of your paycheck. Stay on top of changes in contribution levels and any employer match options.
  2. If you’re self-employed, set up a retirement account today. There’s an excellent tax advantage and depending on the plan, no fees or minimums. Choose a traditional IRA or Roth IRA, a SEP IRA, Solo 401(k) or a simple IRA.
  3. Address the debt you’re carrying. Once you retire, the less debt you have the better off you are. Cut down on your credit cards, pay off your car, use more cash. Swiping plastic is so easy it almost doesn’t feel like money.
  4. Make a budget. Don’t groan, do it. Figure out how much you can save – think an emergency fund. Next how much you can you invest in your retirement. Finally give yourself a reasonable amount of cash spending money. You have to give up an occasional latte, but in 10 years, you won’t care.
  5. Balance your portfolio. The stock market has always been volatile. The economic impact of the coronavirus has hit accounts hard. The closer you are to retirement age, the less time you have to recover loses.
  6. Not investing? Time to start. No matter your age or income, do decide to do something. It’s suggested you invest between 10% and 15% of your income. Consider investing in an index fund to mitigate risk but still play the market. You can invest in mutual funds or sign up with broker.
  7. If you don’t have much money to spare, there are apps to get you started. Acorns and Public are both designed to get you in the game with very little investment or risk. Acorns rounds debit card purchases up to the nearest dollar and invests the money. Public sells slices of stocks, opening the door to buy a piece of the hottest stocks on the market.
  8. What major expenditures are you looking at? Building a garage, buying a vacation home? Those need to be done and paid for before you retire. Put them in your budget.

What about Social Security?

If you’ve worked for at least 10 years, you are likely eligible to receive benefits. Your contributions to social security are counted in quarters. That means to get benefits, you need to earn about earn at least $5,600 in at least 10 different calendar years.

Social security benefits are determined by averaging monthly earnings over 35 years. The months where you earned the most are calculated. If you only worked for 15 years, your benefit will be lower. If you were a stay-at-home spouse, you collect on the breadwinner’s income.

You can see your potential benefit by on the Social Security calculator.

When to Apply

Most people think Social Security kicks in at 65. Not anymore.

The Social Security Administration has a tiered program for paying full benefits. The table below is accurate for 2020.
social security benefits

The earliest you can apply for benefits is at 62. There is a standard cut in benefits of 20%. For each year away from Full Retirement Age, they take another 5%. If you were born after 1960, expect a 30% reduction in your claim.

It also works in reverse. If you wait to claim your benefits after your full retirement age, the benefit increases by 8% a year. If your full retirement age is 66, you can earn an extra 32% if you want to apply at 70.

Maximums & COLA

The Social Security Administration has limits on how much money you receive. According to Motley Fool, a 70 year old claiming in 2020 can collect a maximum of $3,790. Also note that the formulas for calculating benefits change every year. It’s confusing, particularly for seniors.

If you start collecting at your full retirement age, there is no limit on your earnings. If you start earlier, there are limitations on income and money is deducted. These are the figures for 2019.

If you are 65 or under, you can earn up to $17,640 while receiving benefits. For every $2.00 over that amount, $1.00 is deducted from your earnings. Your benefit amount returns to normal when you reach full retirement age.

If you’re 66 and reaching full retirement age within the year, you can earn more. The earning amount rises to $46,920 a year. For every $3.00 over that amount, $1.00 is deducted from your benefits.

The Cost of Living Adjustment (COLA) balances benefits against the cost of inflation. There are no reductions in benefits when the economy deflates. The COLA goes to zero, as it did in 2015.

Social Security was never intended to be the sole source of retirement income. But the program was created in a very different time. The relationship between employers and workers was different. There were more post-employment supports provided.

To live on Social Security alone requires a very frugal lifestyle.

Fund a Comfortable Retirement

If you haven’t started planning for your retirement, these numbers will give you a push.

Retire at 50

If you gross $60,000 a year, you need roughly 70% to maintain your lifestyle in retirement. That comes to $48,000 a year. To stay afloat until you turn 78, you will need assets of $1.18 million.

If you gross $100,000 a year, the amount you need jumps to $70,000. If you live to 78 years old, you need assets of $1,960,000.

Retire at 60

When you gross $60,000 a year, you will need assets of $864,00 to maintain your lifestyle at 78.

When you gross $100,000 a year, you need assets of $ 1,260,000 to live comfortably until you’re 78.

Retire at 65

When you gross $60,000 a year, you will need assets of $ 624,000 to maintain your lifestyle at 78.

When you gross $100,000 a year, you need assets of $ 910,000 to live comfortably until you’re 78.

Retirement Recap

Don’t wait until you’re close to retiring to think about retirement. So many people have little or no retirement saving. The chart below demonstrates the dire straits of retirement funding.

The young people in the highest block have time to increase their assets. The second block will need to push harder. But the farther down the line we go, the scarier it gets.

There’s no accommodation for unforeseen events. Whether it’s a car accident or a global pandemic, life changes quickly. Where do you sit in the age groups on this chart? Have you started putting money away for retirement?

No matter where you stand, you can improve your current financial position.

  • Put yourself on a budget.
  • Put money into an emergency fund savings account to help ease an unforeseen situation
  • If you have a 401(k), max out your contribution. At minimum, put in enough for a company match.
  • If you don’t have retirement account, get one. Invest in the stock market, mutual funds or index funds.
  • Buy treasuries and bonds to diversify your holdings.
  • Pay off your debt.
  • Before you retire, take care of any expensive projects or purchases. Get them completed and cover the cost. Don’t want until your paycheck is gone.
  • Keep track of your Social Security benefits.
  • Take advantage of retirement age calculators to track your progress. (If you have an investment account with any of the major brokerages, they all offer calculators.)

Retirement is coming. It may be sooner than you planned. Think ahead – your lifestyle later in life is dependent on what you do today.

 

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