Can I afford to retire at this exact moment? Here are 3 simple rules of thumb to figure it out in 2023 – Yahoo Finance
Can I afford to retire at this exact moment? Here are 3 simple rules of thumb to figure it out in 2023
While the “Great Resignation” and “quiet quitting” might be sweeping offices for younger Americans, older Americans may have a similar, if more permanent idea in mind these days. With the holidays behind them, some may ask themselves whether they can retire. Like, right now.
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That’s not to say early retirement is a new trend at all, as the pandemic nearly forced many Americans’ hands. As of 2021, about 50.3% of American adults over 55 were out of the labor force and into retirement, according to a Pew Research study. That’s a significant jump from 48.1% in 2019.
But here’s the issue. While retirement is rising, so are prices. As of 2021, the U.S. Census Bureau says the mean retirement income for Americans 65 and up was $73,288. Should you live for another 30 years, that means you’ll need $2,198,640 — and that’s without inflation.
Before you panic, let’s look at three tips you can use to help guide your retirement decision.
The 4% rule
When you decide to retire, many financial advisors might give you the rule of thumb to take out 4% of your savings each year. This is the amount you can withdraw no matter what and hypothetically still have those retirement savings last another 30 years.
The main question here is whether this would offer you enough income, when combined with Social Security, pension and all the rest. If you have $500,000, that would only be $20,000 per year. Yet if you have $2 million, that would be $80,000.
It’s also important to consider what you’ll want to spend that cash on now, and in the next few decades. While travel might be important when you’re in early retirement, don’t forget you’ll likely need cash available for health care costs as you continue to age.
The rule of 55
This next rule of thumb deals with the tax implications of retiring early. While some potential retirees will have plenty of savings, it won’t be beneficial to retire early if you end up paying normal income tax. This is the case for those retiring after 55.
Usually, you’d face a 10% tax withdrawal penalty for making a withdrawal from a tax-qualified retirement plan like a 401(k). But for workers who have an employer-sponsored 401(k) plan, the IRS allows anyone over the age of 55 who decides to leave the workforce to start drawing penalty-free distributions from that plan.
Keep in mind you’ll still be a little while away from claiming Social Security, though. You can find out your full retirement age to take full advantage of Social Security by visiting the Social Security Administration website. There, …….
