Do Some Homework and Retire Early
Many Americans dream of retiring early. If that’s your dream, too, you must do some homework and make preparations.
First, early retirement age usually is considered either before age 62 — when Social Security benefits kick in — or before age 65 — when Medicare benefits take effect.
To ensure you know what to do before retiring, be sure to read at least one book on retirement planning. These books will give you a good base of information and an idea of what questions you should ask yourself or a retirement planner.
It also can pay to hire a good retirement advisor. When interviewing potential advisors, ask if they are a fiduciary. This means that the advisor will not just choose a suitable investment, but will put your financial needs before their own. Ask how they will charge for services. Some financial planners and retirement advisors earn commissions by buying and selling for you, while others charge a fixed percent based on your total portfolio.
It’s also helpful to find out if your potential advisor usually deals with clients with portfolios of your size and what their investment strategy is for people your age.
Other decisions you should make will fall within these guidelines:
Assess Your Current Financial Situation
Determine exactly how much you have in assets, debts and retirement savings.
Online calculators can help determine how much retirement money you’ll need so you can live the lifestyle you want. They also calculate how much Social Security you can count on.
Calculate how many years you’ll need to continue saving before you retire and how much more money you’ll need. If you retire at age 55, you’ll need enough money to last you at least 35-45 years. Divide the additional money you need by the number of years you have before retirement to decide how much you should save annually.
If you retire from the military or civil service, you can rely on a full pension and health benefits. The Internal Revenue Service allows some civil service employees to access their retirement funds penalty-free as early as age 50.
Make a Plan
If you don’t have enough money saved, you might need to cut expenses. Make a budget and look for ways to make more money. Consider paying off your home before you retire so you will only have to pay property taxes, insurance and utilities. You might consider selling your house and downsizing in order to save money on your monthly payments.
Delay Social Security Distribution. You don’t have to take your Social Security benefits when you’re 62. If you have enough investments to live on until you’re 70, you’ll get full Social Security benefits — an income that is inflation-adjusted. Also, if you’re married, there are some strategies that will help you get more out of your joint Social Security benefits than if you make your claims independently.
Keep in mind that if you decide to work during retirement while taking your Social Security benefits, you may owe the government some of your benefits if you earn too much and are younger than 66.
Determine Your Health Insurance Options. Many newly retired workers are shocked at how much individual health insurance coverage costs, so it’s important you factor that cost into your retirement budget. You won’t be eligible for Medicare benefits until you’re 65, so you must buy health insurance for your early retirement. If you’re married, you could be eligible for coverage through your spouse’s health insurance. You also can look into individual coverage through the health exchange marketplace with a possibility of getting a subsidy.
When you become eligible for Medicare, you may find it’s not enough for your needs and you’ll want to purchase supplemental coverage. Experts say that on average, Medicare only covers about half of your health care expenses.
Understand your 401(k) Distribution Options. You should save money outside of your retirement accounts because you will have to pay a 10 percent penalty for early withdrawal before age 59 and a half. However, if you meet certain criteria and leave your place of employment at age 55, you can access your funds without paying a penalty tax.
Take Inflation into Account. The current average inflation rate is three percent — which means prices double every 20 years. Take this into account when planning on how much money you’ll need. Make sure you invest a portion of your funds into equities or another investment which combats inflation.
Consolidate Retirement Accounts. If you have your retirement money spread across various accounts, it will be more efficient to consolidate your money into one account for easier management.
Please contact us for help preparing for retirement.
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In this issue:
This Just In...
Do Some Homework and Retire Early
How Technology Saves You Money
Lower Your Life Insurance Premiums — By Taking Better Care of Yourself
Track Your Medical Expenses, Save on Taxes