Finally, the decade when you get to retire! Reaching your 60s is an exciting time for soon-to-be retirees. It can also be stressful, but that stress can be greatly reduced with some thoughtful planning before that last day of work.
The first thing to do is estimate your monthly retirement income and compare this to your expenses. Income sources can include pensions, Social Security and retirement savings.
An estimate of your monthly pension can be found through your employer. An up-to-date estimate of your Social Security benefit can be downloaded from the Web site ssa.gov. It’s interesting to know the average Social Security benefit is about $15,000 per year.
A safe withdrawal rate from your retirement savings is in the range of 4 to 6 percent per year. For example, a $250,000 portfolio will result in $10,000 – $15,000 of income per year (4 to 6 percent respectively).
If you have a pension, consider yourself fortunate because most people do not have them. That means someone with only Social Security and retirement savings will have about $25,000 to $30,000 per year to live on. That’s not much and probably does not cover all of your living expenses. So what can you do?
The first thing you can do is work longer. I know this isn’t the ideal scenario, but it’s much better to work a few extra years now rather than going back to work in your 70s. Another option is to work part-time in retirement.
One of the big advantages to working longer is that you can delay taking Social Security. One of the biggest financial mistakes that Americans make is taking Social Security early. Let’s say you will receive the average Social Security benefit of $15,000 per year if you begin taking it at your full retirement age of 66. Your benefit will be reduced by 25 percent down to $11,250 per year if you decide to begin Social Security at age 62.
The better option is to wait until full retirement age. An even better option is to delay taking Social Security until after your full retirement age. You will earn an 8 percent increase in benefit for every year you wait. Continuing on with our example, if our retiree waits until age 70 to start Social Security, their benefit will be about $20,000 per year or 32 percent more than their $15,000 per year benefit at 66. That’s $5,000 more every year for the rest of your life.
I know the numbers get confusing. The takeaway is to know that you get penalized for starting Social Security early and rewarded for delaying your Social Security checks.
After going through the exercise of identifying your retirement income, begin mapping out what you will do with your time in retirement. This is the fun part! Will you volunteer for non-profits? Where do you want to travel? What hobbies do you want to pursue? Many retirees find they are busier in retirement than when they were working. That’s awesome because they are “busy” with things they truly enjoy.
My final comments on those final working years and preparing for retirement are to exercise and keep your working skills current. Many people “plan” to work into their late 60s. However, most folks are forced into retirement in their early 60s due to health issues or job layoffs. These forced early retirees then take Social Security early and begin withdrawing from their retirement nest egg sooner than planned. Avoid this common and unfortunate scenario by staying healthy and employable.
Remember this is an exciting stage of life. A little planning will go a long way to make sure retirement is all you dreamed it would be.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
