Recent studies in 2020 revealed that the average national age of retirement is trending downwards, dipping below 65 years of age. This isn’t always due to financial readiness either. Unexpected layoffs, unplanned shifts in the economy: all these factors and more could force you to contend with retirement before you’re ready.
To counter this possibility, you need a backup plan. Heck, even if you retire when you plan to, you still need a course of action. So what steps can you take to answer the question of “When should I retire?”.
Well, that’s where we come in. Here’s our list of the top 5 most helpful tips for planning your retirement! So without further ado, let’s get jump right into things.
1. Know How Much Money You Need
It seems obvious, but make sure to work out how much money you’ll need each year (roughly) once your stream of income ends and Social Security/retirement funds kick in. A general rule of thumb is to plan for having about 80% of what your annual income was per year once you retire.
This is also the point in time where you should look at what financial responsibilities you have left (mortgages, credit card debt, etc.) when you retire. If you’re many years away from retiring, look into splitting your savings towards prioritizing the costs that you feel are more valuable.
2. Evaluate Investments
Another big part of determining when you’re ready for retirement is looking at the investments you have lined up (stocks, bonds, etc.). Budgeting money when supplemented by income makes the dips and curves of the market less dangerous to your finances, But that income disappears when you retire, and dipping into that portfolio for money more and more will cause instability.
To get around this, keep a close eye on the market or ask a financial advisor for help. Learning to balance the danger vs. benefit scales of investments is a valuable tool to ensuring your retirement savings stay high.
3. Different Retirement Accounts for Different Folks
Most full-time jobs offer 401k’s for getting retirement savings off the ground, but taking another step forward with an IRA (individual retirement account) will help even more. There are multiple types of IRAs, each separated by different policies around taxation and income. For example, a key difference between Roth IRA vs a Traditional IRA is that a Roth IRA makes you pay taxes up-front on whatever you put in in exchange for it being tax-free to take out later.
4. Start Now
To get ahead of the retirement savings game, try to start saving as soon as you can in your working career. The money you make now will better withstand market changes down the line than the money you make 20 years from now (since there’s more there).
5. Prepare for Retirement Budgets
A great practice technique to see if you’re ready for retirement is to keep track of your budget for a regular year and see how it would compare to your retirement budget. If you would need more money to keep your lifestyle afloat than retirement savings afford you, then you need to start investing more deeply in your savings.
When Should I Retire? Now You Know
And there you have it! Now that you know the answer to the question of “When should I retire?” with these savings tips, you’re ready to face retirement head-on! And for more tips on managing finances, make sure to check out the other articles on our site!