How Much Do You Need to Retire?
How much do you need to retire? Determining how much retirement savings you need and setting the right retirement goals is an important step to ensuring that you can live out your “golden years” in peace. But it’s not always easy.
You shouldn’t worry too much if your retirement savings is not what you want it to be, though. While it may not be ideal, it’s also never too late to start setting new retirement goals and working towards strategies that will help protect your future. To determine how much retirement savings you need, start by asking yourself these questions.
When Do You Plan to Retire?
You have some say over when you plan to retire, but there are several penalties you need to consider as well. That’s especially true if you have tax-saving vehicles such as IRAs and 401Ks. If you withdraw money from your IRA before age 59½, you typically have to pay a 10 percent early withdrawal penalty in addition to income tax on the amount withdrawn.
There are some ways to avoid that fee though, including if you use the money to pay for significant medical expenses that exceed 10 percent of your adjusted gross income. Purchasing health insurance after a layoff, paying for expenses associated with a significant disability, and annuity payments might also be exempt. Of course, one of the benefits of a Roth IRA is that you can withdraw contributions from accounts that are at least five years old without paying any penalty –you just can’t touch the earnings.
The same age restrictions apply to your 401k, although if you leave your job at age 55 or older, you can take penalty-free 401k withdrawals from the 401k associated with that employer beginning at age 55. On the flip side of that, you might also face penalties if you don’t start taking withdrawals from these accounts by the age of 70½. And you can face penalties if you start tapping into Social Security and Medicare benefits too early or too late.
It’s good to keep all of this in mind when planning out your retirement goals and deciding how much retirement savings you’ll need. This will help you decide the best age to retire.
Where Do you Plan to Retire?
Before you can ask, “How much do you need to retire?” you might also want to consider where your retirement will take you. The cost of senior living can vary by location. When contemplating places or states to retire to, many seniors consider both the cost of living and the cost of medical expenses in an area.
But while making financially smart retirement decisions is important, it’s ok to consider other things too. Access to nature, supportive communities, family, and enriching activities is also important. Just keep in mind that you’ll need more retirement savings to live in pricier cities where your money won’t go as far.
How Do You Plan to Spend Your Retirement?
Your retirement goals might also take into account how you’d like to spend your retirement. A quiet, passive retirement is not for everyone. Many active seniors decide to keep working part-time after their retirement. Doing this can be a good way to afford a few more luxuries, but it can also keep your mind active and youthful.
You can earn up to $50,520 in 2021 without facing a reduction in your social security benefits. In fact, you might be surprised to learn that 55 percent of American workers plan to continue working in retirement, with 41 percent going part-time and14 percent full time, according to the Transamerica Center for Retirement Studies. Popular jobs for seniors after retirement include office assistants, medical assistants, and even school bus drivers.
Calculating How Much Retirement Savings You Will Need
There’s no sure way to calculate how much retirement savings you’ll need. As a rule of thumb, experts suggest you’ll want to make at least 80 percent of your current income. The 20 percent reduction accounts for the lack of payments going into retirement accounts, social security, medicare, and work travel expenses. To achieve this amount, you’ll have to consider how much you’ll be getting from your savings and benefits every month. If you fall short, then you might consider a part-time job or move to an area with lower expenses.
While there may be some concern about having enough retirement savings to last, retirement can be something to look forward to also and more and more people are starting to feel that way. Following steps to achieve your retirement goals is a great way to take some of the pressure off.
Contributed to The 55+ Society by Brittney Villalva
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