When Can I Retire?

Whenever you want to! The real question is: Do you have enough money saved to retire and maintain your lifestyle? It can be difficult to know when you should retire especially if you do not know where the income is going to come from when you decide to stop work and how long it will last. As a Baby Boomer, you also need to understand what healthcare coverage costs will look like and the “what-if” scenarios look like. We have put together a quick step questionnaire to help see if you can retire when you want to.

First, you need to understand how much you are spending today and how much you will be spending in retirement. Some studies say you will spend less when you are in retirement, which is true for some, and some studies say you will spend more in retirement, which is true for some. I’ll make it easy for you. If you can have fun and have a life based on what you are spending today, would you want that to change? When you want to maintain your lifestyle in retirement, you need to make sure you have the same amount of income coming in to cover the same expenses you have today. So to be comfortable and confident in retirement, understand what you are spending today. One easy trick is to go through your last 12 bank statements and add up the total amount that you spent. Do not take things out, even if they are one-offs because chances are you will have some other one-offs each year.

For this article, we will use an example and say that you need $66,000 before taxes a year in retirement or $5,500 a month.

Next, understand what your stable income looks like. What is stable income? Sources such as Social Security and your pensions or annuities. Once you add up your monthly income from your stable sources, you need to understand that is your gross income number without taxes. If you have enough stable income after taxes to cover all your expenses, then you are getting close to being able to retire. If you don’t, you need to figure out how to cover the income gaps before you fully retire.

For example, let’s say you have $2,500 coming in from Social Security every month and $1,000 from your pension every month. You have a total of $3,500 a month of stable income. Because you need $5,500 to maintain your lifestyle, we have to fill in $2,000 a month from other sources.

As a Baby Boomer in retirement, you can fill income gaps by utilizing your other retirement accounts, such as a 401k, IRA, 403b, TSP, etc. or any other savings you put aside for retirement. You will need to calculate what a safe withdrawal rate is. Now a safe withdrawal rate has been highly debated over the years. Can you safely take out 5%, 4%, or 3%? The answer all depends on what types of investments you have and what other sources of money you have in case the withdrawal rate is too high or if you live longer than expected. If you are going to be using 5% withdrawal rate, you only need $480,000 saved. If you are using a 4% withdrawal rate, you need $600,000 saved, and at a 3% withdrawal rate you need $800,000 saved. Even though from 5% to 3% is only a 2% difference, you need to have $320,000 more with the 3% withdrawal rate. That is significant!

For this example, we will use the 4% withdrawal rule and let’s say you have $600,000 saved which means you can withdraw your $2,000 a month to help meet your $5,500 a month goal.

This is a great start… So now you can retire, right?

Before you turn in your resignation, you need to think of other things that could spoil this retirement plan and force you out of retirement. Such as what happens if you have an early loss of a spouse, what happens to the income situation then and is there enough for the surviving spouse? Look at additional costs for healthcare, especially if you retire before you turn age 65 when you are eligible for Medicare. What about inflation and cost of living adjustments, and the possibility of what long-term care may do to your overall plan. All these “what-ifs” require a contingency plan or require you to include it in the overall plan for when you can retire.

Now that you have all the financial “what-ifs” taken care of, you can retire now… RIGHT?!?

It is looking better, but not quite. Ask yourself, what are you going to do when you retire? Picture the day after you retire, what are you doing? You want to make sure you are able to stay active or busy enough to make sure you can be happy in retirement. All too often we see Baby Boomers retire and they go back to work because they are bored, not because of the money. Make sure you stay in touch with your family and friends, and have hobbies.

Now that you have a clearer picture on your income for retirement to be able to maintain your lifestyle, the financial “what-ifs” are covered, and you have some ideas of what you are going to do in retirement, the hope is you can now retire and still maintain your lifestyle. Meet with a financial advisor that has a fiduciary capacity that can help you put all this together if you do not know how to. Don’t be afraid to ask for help or procrastinate, this is your retirement.

Video Transcription

Hi Vince [Oldre 00:00:08], certified financial planner and I want to talk to you about one of the biggest questions we get, and that is when can I retire? Now, the answer is you can retire whenever you want, but it’s not that easy. Do you want to retire with the same lifestyle that you have today, or are you willing to give up some of those things you have today, just so you can retire now?
So let’s go over some things that we look at to make sure that you can retired today, and maintain your same lifestyle, as most people that come in the office, they want to maintain their lifestyle when they reach retirement. So let’s go through some simple practices that we look at.
Number one, look at your expenses. Now, most of you may or may not have a budget, but if you don’t have a budget don’t try to put one together now. Look at your expenses. look at the last 12 months in your bank account, look at how much has come out of those accounts, every single month. Add up the total and divided by 12, and you’re looking at your average expenses over each month.
Now, you might want to take some of those things that you say, “Well that’s an anomaly. I wanna take that out, because I don’t always replace windows.” That might be true, but try to leave those in there, because you’re going to have things that’ll come up every single year, that you might not account for. So if you can, try to leave all the things that you’ve in your expenditures from last year or the year before, or whatever you want to use for your last 12 months.
Secondly, now that you have your expenses, we now know how much income we need to maintain your lifestyle. So the next step is to look at what type of stable incomes you have. Stable income is income that you have from your social security, pensions, and annuities. Those are generally stable because we can rely on that income to come in day in and day out, without having to worry about what the market is doing. So we add up your social security and your pension income, and your annuity income if you have it, and we’ll get your total income.
For example, let’s say I need $66,000 a year to maintain my lifestyle in retirement after tax. I have $3500 coming in from my social security, why pensions, and annuity income. So that means now I have $2,000 I have to make up with my other savings. That other savings could be a 401k, IRA, 403(b), [inaudible 00:02:48] savings plan, any other type of retirement account, or brokerage account, or savings account, that you’ve saved up money to take income from in retirement.
Now that I know I need $2,000 that I have to make up in my lifestyle in retirement, I need $5,500 a month, to receive $66,000 a year. I need to make up that $2,000 gap every single year. So if we look at what is the withdrawal rate that I need for my assets, we might be looking at a 3%, or 4%, or 5% withdrawal rate. That’s a debatable thing that we can talk about it another video.
But if we just look at it the difference between having to take out a 5% withdrawal rate, versus a 3% withdrawal rate, if I need $2,000 a month, at a 5% withdrawal rate I only need to save an additional $480,000 of savings. If I am willing to do a 3% withdrawal rate, I need $800,000 of additional savings. That’s significantly more. Now depending on what you have as far as Investments and what you’re willing to use, and how much risk you’re really to take, will determine how much money you need to save as far a safe withdrawal rate. But as well, is how long you might live.
Now that I have my $2,000 of my extra gap income, or that money I need for my stable income, and my additional income I need to make my $5,500 a month. You now need to look at the what-if scenarios. You’re not quite ready to turn in your resignation. You have to start looking at, what will happen if I have an early loss of spouse? I know I’m going to lose a social security check, so what will happen to the income? Can my surviving spouse survive on that income?
Look at Healthcare, knowing that at age 65, you’ll have Medicare, but before that, you won’t. Look at inflation, look at market risk. All these things are the what-if scenarios that you need to add into your retirement plan.
Now that we have all those things taken care of, you can retire, right? Well, not quite. You also need to figure out what you’re going to do when you retire. Picture yourself. Here’s the day. You stopped working. The next day, you’re retired. What are you going to do? Are you going to garden? Are you going to go to the cabin? Are you going to enjoy life, and make sure your not bored? Or are we going to be bored?
If you’re going to be bored, what we see is that you will find yourself going back to work. You need to have some hobbies, you need to make sure you’re staying in touch with your family and friends. We’ve already done a blog on how you can maintain happiness in retirement. But now that you have your financial things figured out, and now you know what things might look like when you actually retire, we can finally start to start our goal, as far as when we can retire.
If you want to make sure you get our retirement guide, you can go to our website, and make sure you can get our retirement guide. This will help put some of these things into perspective for you. If you want to come to our retirement workshop, we have many coming up here, throughout the months. So if you want to sign up, make sure you do so, as those fill up rather quickly.
Until then, we’ll see you next time. I thank you for watching.

When Can I Retire? Financial Advisor Minneapolis
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