Cashology by FNBO
Will You Be Financially Ready to Retire?
Retirement – it’s the finish line to your long career. It also marks the beginning of more leisure time to be spent on hobbies, with family and friends and fulfilling life-long dreams. When you retire its not only determined by physical and mental readiness, but financial readiness too. Without the latter, a long anticipated retirement could be short-lived. Following, and sticking to, these five simple tips will help ensure you reach your retirement goals and enjoy your golden years.
Assessing your desired lifestyle
- It seems like a no-brainer, but to reach the finish line and retire how you would like, you have to determine your target amount. According to an FNBO ‘Retirement in America’ study, 69 percent of those who have yet to retire hadn’t calculated how much they needed to do so. In order to know that target amount, you have to take into consideration what your life looks like and how much you want it to adjust. The last thing you want to do is guess, or just improvise until you are too close to retirement to make any adjustment or plan.
- Typically, you want to save enough to live on 75% to 85% of your pre-retirement income. That varies based on how much you want to adjust in comparison to your pre-retirement lifestyle. Some folks stay very active or have bucket list items they want to check off. Maybe the house becomes a smaller one, health costs change….It all factors in.
- Barbara goes into a basic formula for calculating necessary retirement savings amounts ( Subtract your projected expenses in retirement from any guaranteed sources of retirement income (Social Security retirement benefit, pension, annuity payments). This is the amount of annual expenses you must fund with savings. Multiply this amount by the number of years you expect to spend in retirement.)
How early should we start saving?
- Simple answer: as soon as you can. A lot of Americans aren’t doing that, however. According to the survey we mentioned earlier, 19 percent of retirees were older than 50 when they started saving for retirement. 16 percent were between 41 and 50.You want to avoid starting that late, but if that’s where you are, an advisor can help. Bottom line, the answer to this is start saving yesterday.
- Talk about compound interest helping those who save earlier, and use $250 per month as an example amount, comparing totals starting at age 25, 35 and 45.
What kind of hurdles does the normal person face when trying to stay on track?
- Well, this figures into your budget no matter what stage in life, but…DEBT. You’ve got the average household owing over $15k in debt. The interest and principal payments on heavy debt like this will severely hamper your ability to put money away for the future. Every day budgeting helps with this.
- Another item: the unexpected. Many folks working toward retirement and saving tend to look at the situation in a vacuum. They calculate (or, without an advisor, they guess) and decide, “hey, based on a percentage of my pre-retirement income, I’m going to save this much continuously all the way up until I retire, then this number will be the rock-solid, be-all-end-all yearly number and I am good. What they don’t plan for, however, is health coverage. You want to keep that on your radar. Employer sponsored coverage will stop, and you’ll have an adjustment to plan for there. Medicare helps, but all things considered, you want to look close at what is bound to happen—a shift in health care and healthcare coverage costs. We don’t want you surprised when it comes to that.
- Also, don’t touch! Your retirement savings is for just that—retirement. Obviously in absolute dire emergencies you can look at using it, but it’s best not to. There could be penalties involved in withdrawing early.
- “There's never enough time to do all the nothing you want.” – Bill Waterson, Calvin & Hobbes
- “The best time to start thinking about your retirement is before the boss does.” – Author Unknown
- Only 58% of Americans are actively saving for retirement
- Only 36% of Americans strongly agree or agree that they know how much money they’ll need to retire.
- The average debt load for Millennials is $30,580, and the average household income is $55,200.
- A majority of Americans are learning about retirement by word of mouth.