Having funds set aside means you will be less likely to rely on a credit card to cover an unexpected cost. Additionally, should an emergency happen, having set aside some money can help you avoid going back into debt. Having a personal emergency fund helps protect your retirement income from being used for anything other than the monthly expenses required to pay for your lifestyle. While nearing retirement, you should have closer to six, if possible. In addition to reducing debt, you should also have a personal emergency fund of three to six months of expenses saved up. Once the highest interest debt is paid, move on to the next and so on. This method involves listing your debts in order from highest to lowest interest rates, attacking the highest debt first while paying the minimum on all others. Using the “Avalanche Method” is mathematically the best way to pay down debt. If that is the case, prioritize which debts get paid down first and take action before you retire to reduce them. Sometimes carrying debt into retirement is unavoidable. For example, high interest credit card bills, medical bills or a car loan add more strain to your retirement income than a fixed-rate mortgage would. Some debts are worse to carry into retirement than others. It’s not necessary to have zero debt when you retire however, large amounts of debt can be stressful while on a fixed income.īefore you retire, look at your debts and make a plan to reduce or eliminate them. Typically, the guideline is to withdraw no more than 4% in your first year and to adjust for inflation and your needs in subsequent years. Looking at your expenses and your retirement income, have you saved enough money? You can use our retirement calculator to help you check to see if you are financially set for retirement. Other retirement income may come from any retirement funds you have been saving. Pensions are unique to your employer and typically offer retirement counselors, which is helpful to see your individual monthly payout. Some pensions can be taken out early at a reduced rate and can be taken out later at a higher rate. Similar to Social Security, your pension amount will depend on when you decide to take it. Common in government and union jobs, pensions typically start paying out at age 65. You can create a Social Security account to run personalized numbers. Your checks could be 24–32 percent more than if you took it at full retirement age. Waiting to take your Social Security benefit until age 70 can be extremely helpful if you can manage it. At this age, you will receive approximately 25–30 percent less each month than if you waited until full retirement age, which is 66 if you were born before 1960 and 67 if you were born after. The earliest you can receive Social Security is age 62. You should first consider when you want to take your Social Security benefit. Retirement income can - and should - come in multiple forms. Planning to spend 85% of your current monthly expenses can add a financial cushion for these activities. While some people may feel comfortable on 75% of their current monthly budget, other people may want to spend more on things like travel, dining, hobbies like golf or boating, and charitable giving. This accounts for reduced commuting costs, potentially less debt in retirement, and not setting aside money for retirement savings. The general guideline for determining your expected monthly expenses is about 75% of what your pre-retirement expenses are. Health insurance-in retirement you’ll no longer receive an employee group rate, so your expense for this may increase.You need to know what you spend each month during your working years in order to estimate your expected expenses during retirement. Calculate Your Monthly Expensesīefore you can determine your monthly expenses in retirement, you need to have a working understanding of your current household budget. To help you make this important decision, here are five actions to take before you retire. What will give you purpose? What experiences do you want to have? You should have more than a vague idea of how you want to spend your time in retirement. You should know where your retirement income streams are coming from, what monthly expenses you’ll have, and how long your savings will last. You should have both short and long-term financial plans. Of course, there are financial considerations going into retirement. While no two finish lines look the same, there are some common requirements that should be met before you retire. Deciding when to retire is both an emotional and financial decision, and for some, it’s one of the hardest decisions in life. Key considerations for retiring at the right timeįor many people, retirement is the ultimate goal-the end of a marathon.
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