Financial planning for retirement can be an intimidating task. Retirees will see a number, and might feel as if it is all the money they have left, for the rest of their life. But it’s not. This dramatic-seeming situation can easily be alleviated with the proper retirement planning and education. Financial advisors will guide a retiree through every step of the retirement plan, and answer any retirement questions along the way. Some frequently asked questions about retirement, and their answers, including:
When can someone retire? Just like every person is different, so is every retirement plan. To start collecting social security benefits, an individual can retire as early as 62. However, several other factors must be taken into account before making that decision. First, decide upon a retirement budget, and factor in annual trips, emergency funds, and monthly bills. Then multiply this annual amount by 25 to 30, depending on the health of the retiree. That is the amount of money to be saved before retirement, in order to live the lifestyle that the retiree is planning to maintain.
How much money is needed? Retirement planning and educational materials will say to follow the 4% rule. This means that a retiree should be able to live comfortably on 4% of their retirement savings every year. For example, if their retirement fund is $450,000, then they should be able to live on $18,000 annually. $450,000 may seem like a daunting amount to save, or it may not seem like enough. Either way, this is what financial planning for retirement is for. Learning now how much money is needed for retirement later will help a retiree be more prepared for the future, and not be surprised at its price tag.
How can someone start saving for retirement? There are many different ways to begin saving for retirement, and there are even different types of financial accounts designed to help a potential retiree to do just that. 401 (k)’s, 401 (a)’s, and Roth IRA’s are all brokerage accounts that will allow a retiree to start planning for retirement early. Though the plans all sound similar, they are fairly easily distinguished.
- A 401 (k) is the most traditional type of retirement plan that is offered by most employers. An employee is able to contribute a certain percentage of their paycheck to the account every month, and they employer may even match that amount. It’s like being paid to save.
- A 401 (a) is offered by the government instead of by corporations. These plans are only available to certain government employees, but they are customizable to their needs. The only catch is that employees are required to save a certain percentage of their income each month to qualify for the program.
- Roth IRA’s are somewhat different. Regardless of income (assuming it is above $5,500 per year); a person can contribute a maximum amount of $5,500 annually to the account. The account owner does not pay taxes on the money that goes into a Roth IRA, nor on the interest that the invested money accrues over time. The funds can be withdrawn at any time, but it is wise to wait until the accounts have earned enough interest to be worth more than when the funds were first invested, even after taxes.
How can someone apply for Social Security retirement benefits? Individuals are qualified to apply for Social Security benefits starting a maximum of four months before they would like the payments to begin. This means that the earliest possible time to apply is at the age of 61 years and 9 months, though many people wait to apply until the ages of 65 or 70 to qualify for a higher amount of monthly social security benefits. For example, if a retiree claims their benefits at age 62, they will receive 75% of projected benefits over the course of their life. Say those benefits were $2,000 per month. By starting early, they would receive only $1,500 a month instead. If they apply at 65, they will earn the full $2,000 per month. Applying at 70 will earn $2,460 per month, so it often pays to wait.
This information may seem intimidating, and rightfully so. However, even though planning for approximately 25 years of someone’s life at a time (this is the estimated time someone spends in retirement) may seem like a stressful task, help is available. Contact a retirement specialist today to seek the appropriate retirement planning and education that is needed to guide a retiree along the way to a stress-free, comfortable retirement.