One of the biggest answers you need to have during the latter half of your working life, “Am I Ready To Retire?” This can be one of the scariest and one of the happiest times of your life but knowing when or if you’re ready to retire is a serious question to answer. Given the countless unknowns after your retire can make this a stressful time but this doesn’t mean you can’t or shouldn’t take steps to get ready for retirement with more confidence than fear.
Basic Retirement Roadmap
Retirement Planning Tip #1: Have Your Budget Dialed In
Just like the rest of your life, retirement also needs to have its own budget planned out. At this stage you most likely have more knowns than unknowns but the one thing you may not have is consistent working capital that you would generate from a job. Some questions you’ll want answers for:
“How much money do I need for retirement?”
“How long can I live on my retirement budget?”
“What expenses will I have during retirement?”
“How much extra money will I need to retire comfortably?”
These are just a few questions to have various answers for when talking about retiring and they are all tough. Instead of guessing and stressing, it’s time to do some research and determine how much your bills will total and determine what it will require of you in order to be comfortable during retirement. There’s always a good shot that some of the expenses you have now will remain the same or even decrease. Other expenses like healthcare and even leisure could increase, on the other hand. So knowing how much to budget for retirement is a good first step to figuring out if you can retire.
Retirement Planning Tip #2: How Much Money Will I Generate or Have From Investments & Savings?
You don’t go into retirement without retirement funds, plain and simple. It’s easy to see your investments like 401(k) plan or IRA’s leading up to your retirement but it’s another thing to determine the kind of lifestyle you can lead with those funds.
Let’s give an example:
You’ve got half a million dollars set for retirement. At the time it may seem like a lot of money but when you take a withdrawal rate of say 4% into account as recommended by the average financial planner, you’re living on roughly $20,000 a year for income. There may be other sources of retirement income that you could have at your disposal such as social security but the point here is to look beyond the number in your account balance and really get a grasp of what it means in real life.
If you budgeted $3,500 a month or $42,000 per year to pay bills, then going into retirement with half a million will only get you about 50% of the way. After that, you’ll need to figure out other income sources and see if they can make up the difference.
Retirement Planning Tip #3: What’s Your Social Security Strategy?
Eventually you will come to an age that you’ll be able to draw from social security. But, know that full retirement age 66 or 67 depending on the year you were born (for now). So if you plan on retiring at 60, you’re probably going to have to wait awhile before you can gain full retirement benefits from Social Security.
This being the case, you’re allowed to start claiming benefits as early as 62 and as late as 70 and in all reality you aren’t technically required to file once you turn 70 but there isn’t any incentive if you don’t. If you file in advance of full retirement age, you’ll gain access to your money sooner but the result is also in a decrease in benefits. On the other hand, if you stall filing beyond full retirement age, your benefits increase and therefore would end up boosting your monthly income later on.
There’s no definitive answer on whether you should file early or late. It all comes down to your specific strategy and plan. Retirement can cause worry but it doesn’t need to be stressful if you take the right steps to enter your retirement years with a successful strategy.