I think we all would answer ‘yes’, of course we want to retire someday.
However, retiring does take effort and planning.
- When do you want to retire?
- How much monthly income will you need in retirement?
- What percentage of your income will come from Social Security when you retire?
- How much will you need to save by the time you retire?
- Will you work part-time in retirement?
Educating ourselves about retirement and our financial options by answering the questions above is the first step.
Choose Retirement Goals
I have learned I would like to be debt free in my retirement. This means no credit card debt, no car payment, no student loan debt, and no mortgage. The lower my monthly expenses are in retirement, the less income I will need to have coming in to pay monthly expenses. So if I have no debts, will I be able to retire sooner?
I have learned social security will replace around 40% of my income when I retire. For every year I wait to take social security after the age of 62 (early retirement), the monthly amount I will receive increases by 8%. Over 3 or 5 years, this can be a significant monthly amount.
Go online to www.ssa.gov and sign up for a ‘My Social Security’ account so you can review your estimated benefit at your full retirement age and at early retirement age (62). You will also find many helpful topics to learn more about your options in retirement.
Beyond Social Security
It is difficult to determine how long we will live, how healthy we will be in our retirement, and even how much a gallon of milk will cost. So, if social security is replacing around 40% of my income when I retire, how much do I need to save by the time I retire to cover the other 60%? Will I be working part-time in retirement? It’s impossible to predict the future, we have to make an educated guess sometimes.
Because according to a national survey by the Employee Benefit Research Institute from early April of 2016, more than 40% of Americans said they planned to keep working past the age of 65. In the same survey, just 15% of retirees said they kept working past age 65. Thinking you can keep working in retirement might not be realistic for most and likely should not be counted on to cover the other 60% of your retirement income.
So How Much Will I Need to Save?
Some schools of thought state there is no magic number to save before you retire. Instead, you just need to know the monthly amounts you need coming in to pay your monthly expenses, and if they are from lifetime or limited benefit accounts. Social Security is a lifetime account, meaning once you start taking it that will be your monthly amount until you pass away; it does not run out. 403(b), 401(k) and Deferred Compensation accounts will run out; they are limited benefit accounts. I learned from Dave Ramsey if you have $250,000 in a limited benefit account and take $1000 out monthly, it will last you 20 years.
Will you have other sources of income in retirement besides social security and a limited benefit account? Will you have no debt? Put some effort and planning into your retirement and start early so that you can say, “Yes, I will retire someday!”
If debt is holding you back from retiring or achieving other financial goals, LSS can help. Call us at 888.577.2227 for your FREE financial counseling session or GET STARTED ONLINE at your convenience. Your counselor will create a spending plan with you and provide realistic action steps to take to conquer your debt.
Author Paige Best is a Certified Financial Counselor with LSS Financial Counseling. She specializes in budget, credit, and debt counseling.