It can be difficult to determine when you should retire. Stepping away from your career is not a “one size fits all” scenario. There are a number of factors to consider, from financial options to healthcare needs to your ideal retirement lifestyle.
To plan well for retirement from a financial perspective, you should consider your income sources and potential costs, then do the math to discover when you can wave goodbye to work without the stress of wondering if your money will last.
Many people consider Social Security benefits to be a foundational building block of retirement planning, although it does not provide the full picture. Workers can begin to claim their full Social Security benefits between ages 65 and 67, depending on their birth year, and become eligible for Medicare benefits at 65.
Whether you decide to retire according to your Social Security benefit schedule or not, it’s important to consider your financial situation as a whole. Social Security may not offer the financial freedom you seek on its own. Instead, look at your investments, savings accounts, and any pension you may receive from your employer to get an accurate picture of your retirement funding.
To calculate your ideal financial situation for retirement, remember to factor in both necessary expenses and lifestyle choices. Some things to consider include:
- Groceries and dining
- Health insurance
- Recurring bills and subscriptions
- Moving expenses (and the cost of living in your new location)
The classic “rule of thumb” regarding retirement withdrawals is to begin by withdrawing 4% of your savings in the first year, adjusting for inflation with each year that follows. For example, if you withdraw $40,000 from your retirement account during your first year of retirement, and inflation is 5% that year, you would withdraw $42,000 the following year (using the $40,000 x 0.05 calculation).
To calculate how much money you will need to retire, you’ll need to factor in individual reference points like your retirement age, investment portfolio, and life expectancy. A financial planner can help you create a plan that suits your needs — and starting as early as possible is always best.
Even for those who have created the perfect retirement plan, unexpected situations and expenses can arise. From unexpected repairs to expensive healthcare bills, it’s crucial to leave room in your retirement budget for these contingencies.
Consider raising your emergency fund from the typical 3-6 months to a full year of your retirement income if you can – it can serve as a valuable cushion when the unexpected shows up at your door.
Remember that your costs of living will increase over time with inflation, and living on a fixed retirement income may not account for that. Consider talking to a financial advisor about keeping some of your retirement funds in stock portfolios so they can accrue dividends and help you keep up with rising costs.
It may also be helpful to research Social Security cost-of-living adjustments, as well as securities that are set up to protect against inflation.
If you’re ready to leave the 9-5 behind, but aren’t quite ready to exit the workforce entirely, choosing part time work could have a positive financial impact. By using less of your retirement funds up front, you’re allowing your money to continue to accrue, which will serve you well in the long run when you’d like to stop working completely.
Retirement planning can be complex. As you consider your options, you may want to sit down with a financial advisor to ensure that you’re building a future that gives you financial stability you desire in your retirement years.
At Marietta Wealth, we offer retirement planning services for individuals, and we would love to sit down with you and help you prepare for the retirement you’ve always dreamed of. It’s never too early to begin! Get in touch with us today.
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