When Will I Be Able to Retire?

Are you ready to call it a day? Do you feel confident in the amount of money you've set aside and invested for your retirement?

Perhaps, but over 64% of Americans are set to retire broke.

If you're worried about your retirement finances or how to put yourself up for future success, you've come to the perfect spot.

In this article, we'll go through financial considerations, ways to properly prepare for retirement.

To Retire, How Much Money Do I Need?

Unfortunately, there is no one-size-fits-all solution. While some experts advise adhering to the 4% guideline...

Each year of retirement, split your projected monthly expenses by 4% to get the amount you'll need to withdraw from your retirement assets.

...the truth is that determining how much money you'll need to retire is based on several factors, including age, income, savings, the cost of living, among others.

And, while not all money experts agree, the 4% rule may be one of those that make the most sense in today's market, especially for individuals experiencing economic hardships as those experienced during the COVID-19 pandemic.

Will the 4% rule, however, work for you? How can you genuinely prepare financially for retirement? Let's get started on figuring out how to properly plan for your future.

If you were to take money out of your retirement account early, this amount would undoubtedly change.

How can I figure out when I'll be able to retire?

The age at which you should retire is determined by several circumstances, but for many people, one of the most important is the age at which they begin collecting retirement benefits.

To be eligible for Social Security benefits, you must be 62 years old by 2020, but you won't start receiving monthly payments until you're at least 66 years old.

What is more crucial when it comes to determining your retirement age? When deciding to retire, determining how much you'll need to save to achieve your goals and meet your needs.

Saving for retirement as a 20-year-old, for example, looks very different than starting to save for retirement at the age of 40.

If you're dead set on retiring at a certain age, choose a retirement window as a goal instead. If you wish to retire at 65, give yourself a window of time between 62 and 68 years old.

Preparing for retirement based on your age can be time-consuming and unpleasant. Consider using a tool or calculator instead of spending hours — or even months — crunching statistics.

A calculator can help you figure out when and how much money you'll need to retire by taking into account essential information.

Aside from age, there are other additional considerations to consider while creating a retirement financial plan.

Three Financial Factors to Consider When Calculating When You Can Retire

If your goals are based on your retirement window, you may now be exploring the internet for "How to Calculate When I Can Retire."

When planning for retirement, it's critical to consider the following factors, whether your goals are based on age or anything else.

1. First and foremost, will you be paying off debt?

If you're approaching retirement, it's crucial to assess your debt and determine if you'll be able to pay it off throughout your golden years.

Do you have any outstanding bills when you retire? You'll have less money available to utilize for day-to-day financing and to enjoy things like traveling and indulging in activities you enjoy if you have a mortgage, credit card debt, automobile, or other debts.

It's critical to examine your budget if you're sliding into debt during retirement or planning to retire and looking for ways to get out of debt before retiring.

For some people, retiring with debt may be unavoidable. If this is the case, you must factor these costs into your calculations when determining how much money you'll need to retire comfortably.

2. How Much Are You Planning to Spend in Retirement?

You've already decided whether you'll retire debt-free or debt-free, but you'll also need to figure out how much you'll spend on day-to-day expenses and the lifestyle you want to live.

According to the Bureau of Labor Statistics, households with a head of household aged 65 or older spend an average of $3,800 per month or $45,756 per year.

The following expenses are included in a year's budget: utilities and housing, transportation, healthcare, food, household requirements, entertainment, among others.

...but how much you spend in retirement will undoubtedly be determined by the lifestyle you choose. Do you want to travel a lot during your retirement? Perhaps you'd like to take up a new hobby?

As you get closer to retirement, start keeping track of your discretionary vs. non-discretionary expenses to get a clear picture of your needs vs. wants.

3. Will Social Security or other sources of income replace a significant portion of your income?

Do you know how much of your income a pension, 401k, or Social Security will replace?

As a general rule, you should replace 70% of your pre-retirement income with a combination of Social Security, pensions, asset income, and so on.

For example, the amount you will receive from Social Security is determined by several factors, including the age range in which you intend to retire, history of pay, relationship status, among others.

3 Ways to Improve Your Financial Preparation for Retirement

You've thought about the elements that affect retirement, but how can you better prepare for it now? Are there any specific steps you should take now, before it's "too late," to prepare for retirement?

Absolutely.

Here are our top three financial retirement planning suggestions.

1: Make retirement planning a top priority.

It's never too late to start contributing to your future if you haven't already! But, to accomplish your retirement goals, how much should you contribute?

If you've already achieved your short-term objectives...

Your obligations have been paid off, and

You're paying the bills that must be paid.

...make as much of a contribution as you can toward your retirement goals. This is the greatest place to deposit your 401k assets if you have one.

Start with a minimum of 10-15 percent of your salary if you aren't ready to put aside large sums of money for retirement.

Although it may not appear so at first, paying yourself first and starting to save for retirement early can make a huge impact in the long run.

2: Make adjustments to your spending based on your retirement plans.

Consider practicing living on the amount you'll have when you retire as you come closer to retirement.

For some, the amount of money they'll spend in retirement is less than they'll spend before they retire, while for others, the converse is true.

In any case, it's critical to know that you'll be able to live well on the money you'll receive in retirement.

Adjust your expenditures based on your future retirement goals to successfully live within your means during retirement. Consider living on the bare minimum budget you'll require in retirement if you plan to retire within the next 3-5 years.

Are all of your sources of revenue in sync? This will show you what goals you'll need to change and how much money you'll be able to spend in retirement.

3: Know how long you expect your retirement income stream to last.

Do you know how long you'll be able to live off your retirement savings? Even after you've made financial preparations, there are numerous variables at play.

Do you know how to calculate your investment returns? Have you budgeted for inflation, as well as unforeseen bills and emergencies?

All of these factors can affect the longevity of your retirement income, so it's critical to understand and plan for the possibility that it will change.

There are a variety of methods for calculating how much money you'll need to retire and how long that money will last, ranging from the four percent rule to the income floor plan.

For example, the four percent rule works for many people, but only if you keep to the strategy year after year. The consequences of a single large purchase or indulgence can be significant.

For individuals prepared to explore income and investment sources such as pensions, annuities, CDs, and so on, the income floor plan works well. The disadvantage of this technique is that it becomes increasingly difficult to establish a large enough floor when interest rates are low (as they are during a global epidemic).

References:

• https://www.ssa.gov/benefits/retirement/estimator.html
• https://www.cnbc.com/2021/09/15/this-is-age-when-americans-say-they-plan-to-retire.html
• https://www.investopedia.com/retirement/when-should-i-retire-pros-and-cons-different-ages/

Last updated on 2022-03-02