Are you 30 or 40 something? Unlike your parents and grandparents whose saving, investing and retirement programs primarily were handled by their employers and by Social Security (SS), you need to take full control of this aspect of your life.
Only you can make the decision about when to retire. Well in advance, you will need to determine first what you want your retirement lifestyle to be and then to calculate how much you will need to support yourself in that lifestyle.
The most thorough approach in making your "when" decision is to develop a retirement budget and work with a professional financial adviser. Your adviser will give you scenarios for timing your retirement along with a strategy to reach your goals by analyzing all the factors that may affect your retirement planning, including health issues, ongoing family responsibilities, plans for travel, charitable and family gifting, etc. All of these factors and more will have an impact on your decision on what you need, when you need it, and how you will retire.
- Your retirement savings may include equity in your home, rental property, stocks, IRA accounts, and savings accounts. Those particular savings vehicles that defer taxes, such as an IRA, can be the most powerful.
- Your retirement income may include rental income, income from the sale of your business, interest and dividend income, IRA distributions, and SS.
Some financial planners suggest you plan to save for your retirement as follows:
- At age 35, save an amount equal to your annual salary.
- At age 45, save 3-times your salary.
- At 55, save 5-times your salary.
- When you retire at age 67, you should have 8-times your annual pay.
Addressing your financial gap. Once you compare your current and projected retirement savings and income against your needs, you will know your financial gap, if one exists. You may find that you need to work part time or to delay retirement for a few years. Your analysis may also call for increasing current contributions to your retirement accounts. For those who are self-employed, you may consider amending your company's plan to one that allows higher owner contributions.
Social Security. No matter what your age, if you haven't yet logged into your SS benefit account, do so right away! Go to www.ssa.gov. There you will find a tremendous amount of information about your retirement benefits to help you make sound decisions.
Finally...don't forget about Medicare. Medicare is the federal health insurance program for people who are 65 or older and certain younger people with disabilities. The SSA says that "If you plan to delay receiving benefits because you are working, you should sign up for Medicare three months before reaching age 65, regardless of when you reach full retirement age. Otherwise, your Medicare medical insurance, as well as prescription drug coverage, could be delayed, and you could be charged higher premiums."
Next month: A specific discussion on the tax impacts of working in retirement on your monthly SS benefit amount.
For more information on tax deferred retirement plans and understanding the tax implications on your retirement, contact us at
206-522-0110 for a retirement planning consultation.