There was a time that a person would retire and stay retired for the rest of their lives. They could live off of minimal income and would receive payments from pension plans and Social Security. Since companies have shifted away from pension plans to 401ks and IRAs, the burden of planning for the rest of retirement is now on us. If you want to be able to retire permanently, you may need to take a number of factors into consideration. Here are a few things to consider that will help you find the answer for “When can I retire?”
When Can I Retire? – Contributions
The amount of money that you will have in retirement is largely dependent upon how much money you invest now during every single pay period. The more you invest in your retirement plan, the longer your total investment account can grow. If you have a 401k, please remember to at least contribute enough to get the maximum company match, thought you could go right up to the 401k contribution limits. If you depend on IRA’s, try to max them out whenever possible.
I personally contribute 6% to my 401k, which gets matched with another 6% from my company. My husband and I also each have a Roth IRA we max out with $5000 contributions every year, keeping within the IRA withdrawal rules. We are hoping that those 3 accounts combined with our individual stock investments and his teacher’s pension will provide enough for us to retire at age 52.
When Can I Retire? – Target Amount
Another factor that will determine when you can retire is how much money you need. If you live on $50,000 a year now, you are probably best off planning on needing that amount each year in retirement as well. I have heard that big expenses like housing usually goes down since you pay off your mortgage. But, I have also been told that other big expenses like health insurance and travel goes up. In short, I plan on needing as much in retirement as we need now, which is about $35,000 a year after taxes.
When Can I Retire? – Debts
Your debt level has a big effect on your ability to retire. You will need enough money to handle your financial obligations as well as your regular expenses. Eliminating your mortgage, car notes, and credit card bills before retirement will reduce the amount of money that you will need. You can retire a whole lot sooner if you handle your liabilities now.
My husband and I paid off my car in 2007 and his car in 2010. We have been paying ourselves those two payments since then so that all of our future vehicles can be bought with cash. Our only debt now is our 4.5% mortgage which we are overpaying, so we should be completely debt free by 2017 (age 33 or 34). That should help us reach our early retirement dream.
When Can I Retire? – Life Expectancy
People are living a whole lot longer today than they were just thirty years ago. We all need to consider the maximum number of years that we may be around. A lot of retirees underestimate their longevity and end up having to reenter the workforce just to cover their last years or have to get help if they are unable to work.
The target age varies on a bunch of circumstances, but my husband and I are trying to be on the safe side, so we have decided to plan on hitting 100. That is highly unlikely based on the fact most of both of our families pass away in their 80’s, but I rather not be forced to share my dog’s food when I have to clean my dentures.
When do you think you can retire? Do you even want to at this point?
Crystal Stemberger uses Budgeting in the Fun Stuff to write about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way.