A quick Google search will tell you that the standard retirement age in the U.S. is 66 years old. However, you don’t want to wake up on your 66th birthday wondering if you have the means to retire. There’s really no *perfect* age to hit retirement, but there are factors to consider before you can ride off into the sunset. In this article, we’ll guide you through the critical considerations you need to answer the question, “when can I retire?”
What are the primary considerations?
The main factors you should consider are your personal income statement: your income and your expenses. The first question you should ask yourself is, “what am I spending today?” You want to determine what it costs for you to live today. Chances are, if you look at and list all the places where you’re spending money, some of those expenses you might stop spending money on when you retire. On the other hand, there also might be expenses you add, such as travel, for example. Simply, you need to quantify what it would cost for you to live in retirement.
Is there a specific dollar amount I need to retire?
There’s no one-size-fits-all dollar amount for retirement. The amount of money that you need to have saved to retire really depends on your own personal circumstances.
You might have external income sources such as social security, pension income, or the sale of the business. A good exercise for you to try would be totaling up those income items, looking at how much your expenses cost you, and looking for a gap. Then ask yourself the following question, is there a gap between the fixed income sources that you have and the costs that you have? If there’s a gap, you and/or a financial advisor can start calculating how much money you need and what type of asset base you need to supplement that gap.
Can I retire early?
The fact is that the decision to retire early is the most expensive in retirement. Your money is not compounding for nearly as long. That means you need a lot more resources to fund your retirement. Since you need a bigger pile of cash to make that a reality, you need to make a plan and know your expenses. It’s essential to understand your income sources, assets, and how long that will generate the lifestyle you anticipate living in retirement.
How do I plan for inflation?
Inflation is the invisible thief. It eats away at our ability to purchase goods and services. So the way to account for inflation is to make assumptions about inflation over the long term by increasing your expenses each year in your retirement plan. Then you want to factor in your income and asset resources, such as your social security, 401(k), or IRA accounts. All of those factor into the puzzle of living the lifestyle you want over your expected lifetime.
How do I budget for retirement?
You’re not the first person to ask this question.
You want to start with your current expenses. What does it cost for you to live today? Then, again, ask yourself: which of these expenses will go away and what expenses am I going to add? Remember, you’re probably going to want a similar lifestyle to how you’re living today, but you can factor in minor adjustments like travel when planning your retirement.
Who can help me plan my retirement?
A trusted fiduciary financial advisor can help you plan for your retirement. They can organize all your expense information and start doing projections and modeling to help you figure out all the different assumptions you need to make. Working with a team of experienced professionals, such as the ones we have at Fiduciary Financial Partners, can help you navigate your own situation.
If you want to learn more about planning for your retirement you can schedule a consultation with us.
Check out our most recent blog post: What Is Important to You About Money?
Trying to decide which retirement plan is the best for you? Check out our YouTube video: Roth vs. Traditional 401(k): Which one is right for you?