Early return is a dream for many, but skipping the gun by going too early lets you tie pennies at…
Early return is a dream for many, but skipping the gun by going too early lets you tie pennies at the end of your life when your savings go dry. Before you decide to retire, it’s important to make sure all your finances are in order to avoid this gloomy image.
Here are four questions that you should be able to answer “yes” if you are really ready for an early retirement.
It’s not that you can not retire with debt, but it takes a risk.
You must pay these balances with your retirement savings and there are several ways to back up. If it’s swinging debt, like credit cards, debt can go out of control and you can end up spending your life’s savings just to get rid of the balance. If you still pay your house and an unexpected expense occurs, like sudden illness, you can have no choice but to empty your retirement accounts to keep losing the roof over your head.
It is best to retire without debt, so before you take the language when you still have a mortgage or credit card bill, consider delaying retirement until you have settled the debt.
It’s impossible to predict exactly how much you need for retirement because there are so many variables, including your life expectancy, investment return and inflation. But you can, and should make a realistic estimate, how much you need to live.
Next, consider inflation. Your money today does not go so far tomorrow. A good estimate of inflation is 3% per annum.
When you have these figures, you calculate your estimated annual living expenses on retirement, and remember to add 3% to inflation each year. So if your living expenses this year were $ 35,000 next year they would be $ 36,050 and so on. Continue this process for each year from now to the end of your estimated life span. Or you can only use a retirement calculator. Add a little cushion to this amount if your money does not go as far as you hoped or if you encounter unexpected costs.
Finally deduct the amount you expect from Social Insurance and any employer 401
(k) match to calculate how much you need to save on your own.
Your pension savings are not just for public living expenses. It must also be enough to protect you when unexpected expenses occur, such as a serious illness or long term care needs. The average couple who retire at the age of 65 need $ 280,000 to cover healthcare costs throughout the pension, according to Fidelity. If you plan to retire before you’re 65, you’ll need even more.
Medicare will cover some of your medical expenses in retirement, but you will not even qualify until you are 65 years old. If you retire before then, you need health insurance, either through a spouse or by purchasing your own policy.
Even if you qualify for Medicare, it does not cover everything. There are still deductible and copays that can increase up to thousands of dollars if you get seriously ill or injured. If you have not paid much attention to the cost of health care earlier, you should reassess your pension savings target to ensure that you cover the health costs and delay the retirement until you save so much.
With few exceptions, you can not withdraw money from your retirement account unless you are 59 1/2 or older. Violation of this rule will result in a 10% early retaliation penalty, except due to income tax on the distribution. If you absolutely do not need it, it’s not a good idea. If 59 1/2 is far away for you, you may want to open an account without retirement and save money there or otherwise leave it in your savings account. You can live off this until you are entitled to withdraw your pension account distributions without penalty.
If you can definitely answer “yes” to these four questions, congratulations! You are on the right track for a happy early retirement. But if you are not, you’re better off waiting a little longer until you’re really financially ready.