Most people have an ideal retirement age in their head. Perhaps you hope to retire early and travel the world, or stop working right at age 65 for years, the traditional retirement age. Or maybe you're nearing your 60s, or even your 70s, with no desire to slow down.
Essentially, the decision when to retire is yours. And it's one you should consider carefully and base on a number of factors, such as your retirement savings, when you'll begin collecting Social Security, your plans for retirement, and your health.
Do I have enough money?
Whether you've been stashing away money since the beginning of your career, or started a retirement fund a little later than you intended, you're likely wondering if you have enough savings to stop working. Financial experts estimate that you'll need between 70-90% of your pre-retirement income to maintain your standard of living. Yes, less than 100%, because hopefully you've paid off your mortgage and other installment loans, aren't carrying a heavy load of credit card debt, and no longer have costs associated with children, such as childcare or college tuition. Plus, you'll no longer be saving for retirement.
To determine your post-retirement income, you may want to start with a thorough examination of all the resources you're planning to use during retirement. These might include a combination of funds from Social Security, your pension, a 401(k), an IRA, mutual funds, stocks and bonds, annuities and savings accounts.
Be sure you know how much you can expect from Social Security. Knowing the amount of your benefits is essential if you're planning to rely on them during retirement. Remember: You can start receiving Social Security benefits at age 62, but you'll receive more money each month if you wait until your U.S. government-deemed full retirement age. Your benefits will continue to increase the longer you wait to file, up until age 70.
Am I on track?
Now that you're aware of your resources, calculate your retirement income to see if you're on track. If you're unhappy with the results, you can try making some small changes to boost your retirement savings these last few years, such as increasing your savings as much as you can, making sure you're contributing enough to your employer-sponsored plan to receive the full match, and contributing the maximum to your IRA. Remember, you can make "catch-up" contributions if you're over 50, which are additional contributions to your IRA.
You may also consider tightening your budget to increase your savings. At the same time, to make your post-retirement budget lower, work to pay off credit card debt and your mortgage.
Should I reevaluate my investments?
Now may be a good time to conduct an asset allocation analysis to compare how your assets are invested in stocks, bonds, and cash. Since you're nearing retirement, you need to consider the risk of your portfolios. You may want to seek a combination of investments that are more conservative because you have a shorter time frame to compensate for the inevitable fluctuations of the market.
You also might consider investing part of your retirement savings into an annuity. Annuities are often offered by insurance companies, which make a series of payments to you in exchange for a single premium or series of premiums. These payments can continue for a defined length of time or an indefinite period, such as your lifetime. Deferred annuities begin at a set time in the future and help you accumulate money for future use.
Should I readjust my plan?
If you fear that the amount in your retirement fund won't be enough to get you through the rest of your life, you may want to adjust your timeline. Retiring a few years later will give you more time to save, and more time for your savings to grow.
Diversification and asset allocation do not assure a profit or protect against loss.
Bonds are subject to interest rate risk and may decline in value due to an increase in interest rates.
Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.
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A 10% tax penalty generally applies for withdrawals from tax-qualified products and/or non tax-qualified annuities before age 59 1/2.
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