3 Steps To Take Now To Retire At The Right TimeSubmitted by AssetGrade, LLC. on June 6th, 2017
When you can retire is more dependent on how much you’re spending than how much you’re earning. Here’s why:
With interest rates low and people living longer, the correct rule of thumb says you’ll need to save 33x the amount you spend annually to reduce the risk of running out of money.
First figure out your monthly expenses. For example, if they run $10,000-$15,000 a month, that’s $120,000 - $180,000 a year you’ll need to fund in retirement. However, you may live in a part of the country where the cost of living is much higher.
A married couple (both collecting their maximum Social Security benefit) will collect about $30,000 each annually. That leaves them a gap of $60,000 to $120,000 annually to cover from other sources.
With interest rates and people expected to live longer, the correct rule of thumb says you need to save 33x that amount (that’s $2 million-$4 million) to reduce the risk of running out of money.
Don’t panic. Instead, take these three steps now to avoid being forced into difficult decisions later.
Reduce Your Monthly Expenses
And Make Better Choices
“If only I’d done this 20 years ago”, is a common regret for many people when later faced with tough choices about the ability to retire. Remember, you can’t save more if you don’t start by spending less.
Do I need to downsize my lifestyle now or in the future?
Do I have adult children who still need my financial help?
Get your spending under control. You’ll see your savings grow faster and you’ll have a smaller gap to fund in retirement, giving you more flexibility to decide when it’s right for you to retire.
Social Security –
Be Open Minded About Your Options
Social Security benefits increase 8 percent for every year people ages 62-70 wait to take those benefits. If you're in good health, it really pays to wait on taking your Social Security benefits.
Many people claim Social Security early because they don't want to tap into their own savings. This can be a mistake. Contrary to what you might think, in a low-interest rate environment like today, your money is likely to last longer if you tap your own savings first and delay taking Social Security benefits.
Married couples, in particular, can use the Social Security rules to receive more combined benefits if they are open minded about their finances, learn how the rules work and develop a coordinated plan.
Save Taxes –
Use The Right Type Of Account
Reduce what you’re paying in taxes by saving with the right types of retirement and investment savings accounts. This strategy is particularly helpful if your income is “lumpy” from year to year. Fluctuations in your business income or being paid with commissions or stock incentives, for example, create opportunities to make the most of the different tax deductions available using 401k plans, traditional IRAs, Roth contributions and Health Savings Accounts (HSAs).
Apply the same planning later, as well. Today many people talk about semi-retirement, starting a business or pursuing other activities. Others receive deferred compensation or stock related payments years after retiring. Traditional IRAs, Roth IRAs, and HSAs have different rules regarding how money is taxed when you take a withdrawal. Your money will go farther when keep more of each dollar in your pocket.
The sooner you get started, the easier it is. We’re here to help. Call us to better understand the ways your spending impacts your ability to retire, how delaying Social Security benefits can make your money last longer, and the various ways that using the correct types of investment and retirement accounts will save you money on present and future taxes.