The Importance of Planning Your Retirement Age
Summary: Retirement is a significant milestone in everyone’s life, as it marks the transition from an active work life to a well-deserved period of relaxation and leisure. Have you planned your retirement age?
Retirement is your reward for all the hard work you’ve done throughout your years on the job. Your retirement dreams may involve traveling the world or spending every day on the golf course. Whatever you have in mind, you’ll need retirement savings.
A significant factor in planning for your retirement is determining at what age you plan to stop working and start enjoying the fruits of your labor. According to a 2022 Gallup poll, the average retirement age in the United States is 61. However, the full retirement age for Social Security benefits is 66 or 67, depending on the year you were born. Have you saved enough for early retirement?
Let’s look into the importance of planning your retirement age, tools available to help you and factors you should consider when deciding when to retire.
Why planning your retirement age is crucial
Deciding your retirement age is important because it can help you determine how much you should be saving now to build your nest egg for the future. Additionally, retirement savings accounts such as 401(k) or IRA, as well as Social Security benefits and Medicare all have defined ages you need to reach before you can start receiving benefits.
For example, you can start receiving Social Security benefits when you’re 62. However, if you wait a few years until you’re 66 or 67, your benefit payments will be larger than if you start receiving them at 62.
Four things to consider when planning for your retirement age
When you’re trying to decide what your retirement age should be, there are several questions to ask yourself. Here are four crucial factors to consider:
How much will you need to live comfortably?
When you retire, you’ll want to continue living the way you’re used to living. You don’t want to have to struggle to make ends meet, so you should figure out how much you need to live comfortably after you stop earning a paycheck. A general rule is that you should be able to maintain your lifestyle in retirement on 80% of your pre-retirement income.
You should also consider how you plan to spend your retirement. If you dream of traveling the world after you retire, you’ll most likely need more than 80% of your pre-retirement income. You may have to hold off from retiring for a couple of years until you can receive the maximum Social Security benefits and start putting more into your 401(k) or IRA. However, if your idea of retirement is spending more time with your grandkids and working in your garden, you can probably get by with less retirement income.
How long do you plan to live?
You may not want to think about your impending death, but when it comes to retirement planning, it’s an essential factor to consider. In the United States, the average life expectancy for men is about 73 and for women, it is a little over 79 years old. If you expect to live well into your 80s, that should factor into how much you save for retirement. Experts believe your retirement savings should be enough to provide you with income to live on for at least ten years after you leave the working world.
How much do you have in retirement savings?
If you’ve been putting money into a retirement plan since your 20s, you’ve probably built up a pretty nice nest egg to retire on by the time you’re in your 60s. However, if you started your retirement savings later in life, you may have to be more aggressive with your investment strategies and take advantage of “catch up” contributions.
How to use a retirement age calculator
A retirement calculator is a handy tool you can use to estimate what your retirement age should be given factors such as your current retirement savings, monthly/annual contributions, earned interest rate and inflation. It can give you a realistic picture of your financial situation in retirement and how long your retirement savings will last.
Mutual of Omaha provides a retirement calculator that can help you determine if your retirement savings are sufficient to get you through your golden years.
How to maximize your retirement savings
If you don’t like what you see after running the numbers through a retirement age calculator, there are things you can do to help maximize your retirement savings and put yourself in a better position to retire when you want. Here are four steps you can take today to build up your retirement savings.
1. Cut back on expenses and reduce your debt:
Look at what you spend your money on. If you’re spending a lot shopping online for clothes or other stuff you don’t need, see if you can allocate that money to your retirement savings instead. You can use every penny you save today in your future retirement. Plus, the power of compound interest can accelerate the growth of your savings, providing you with more to live on.
2. Start saving now:
It’s never too late to save for your retirement. Getting a late start building your savings just means you’ll have to contribute more than you would if you’d been contributing to a 401(k) or IRA since you were in your 20s.
3. Make catch-up contributions:
If you’re in your 50s or older, you can make catch-up contributions to your 401(k) or IRA. For 2024, the maximum catch-up contribution to a 401(k) is $7,500. For IRA plans, the catch-up contribution allowance is $1,000.
4. Maximize your Social Security benefits:
Depending on your retirement age, assets, health and other factors, it may make sense to take your Social Security benefits earlier or later. Although you’re eligible to start receiving Social Security benefits at age 62, you won’t get 100% of those benefits until you reach full retirement age, which is 66 for people born between 1953 and 1959. The full retirement age for those born in 1960 and after is 67. To maximize your benefits, you may want to wait until you reach full retirement age.
Conclusion
There’s a reason why retirement is known as the golden years. It’s the time in your life when you leave the working world behind and enjoy a well-deserved period of relaxation and recreation. The last thing you want to do is stress over how to make ends meet. Planning the right retirement age is an important part of enjoying a comfortable retirement, free of financial insecurity.
Mutual of Omaha financial advisors can help you organize your accounts and create a plan to maximize your assets. They can help you address any shortfalls and make adjustments to savings rates, timelines or account types to help put the pieces of your retirement plan together. Ready to start looking? Find a Mutual of Omaha financial representative near you.
DISCLOSURES:
Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice. Not all Mutual of Omaha agents are registered representatives or financial advisors.
Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.