When can I retire?

One of the common questions I hear is “when can I retire”? In our younger years some of us assume that we’ll be happy working until an old age, but life circumstances change, and decades in one profession can take its toll. So when can you retire? While the answer is different for everyone, the process of figuring out when is the same.

Step 1 is to figure out what your sources of retirement income will be. Do you have a 401(k), IRA, annuities, other savings? Are you one of the lucky few remaining with a pension? Probably if you’re part of a teacher retirement system. Are you eligible for social security yet? If not, how many years until you plan to take it? List all sources of income and note there may be some you’re not thinking of , such as an old savings account, or even a property.

Step 2 is to determine how much retirement income each source can provide. Pension estimates tend to be fairly straightforward but individual investments are more complicated. As a rule of thumb you can assume you can withdraw about 4% per year from an investment account with diversified investments such as a 401(k) or IRA. So a 401(k) with $300,000 would provide roughly $12,000 in income per year and increase with inflation. Social security can be tricky. If you’re too young for benefits, will you have enough income to cover your expenses until you collect benefits? Can part-time work bridge the gap?

Step 3 is the expense side. How will your expenses change in retirement? You may decide to travel more, but that may be more than offset by paying off your mortgage. Clear as many debts as you can before retirement to lower your expenses. If you find your retirement expenses exceed your expected income, don’t panic. You may still be able to retire with a few lifestyle changes. To discuss a more comprehensive retirement plan with me, please book an appointment.

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