Yahoo Finance Can I afford to retire at this exact moment? Here are 3 simple rules of thumb to figure out if you can make a move 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 well over and winter still lingering, some may ask themselves whether they can retire. Like, right now.
Don't miss
Here's how much money the average middle-class American household makes — how do you stack up?
You could be the landlord of Walmart, Whole Foods and CVS (and collect fat grocery store-anchored income on a quarterly basis)
This janitor in Vermont built an $8M fortune without anyone around him knowing. Here are the 2 simple techniques that made Ronald Read rich — and can do the same for you
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 advisers 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, you can find out how old you need to be to receive 100% of your Social Security, and what it would cost to retire sooner.
Read more: Owning real estate for passive income is one of the biggest myths in investing — but here is 1 simple way to really make it work
You need $1 million (or more) in the bank
A recent survey by Northwestern Mutual found that Americans believe they need $1.25 million to retire comfortably today and continue receiving income for the next 20 years. It’s certainly a great idea to create a goal, based on the advice of your financial adviser and a budget.
However, if you’re looking to retire today, you need to make that goal flexible. If you’re old enough to be thinking about retirement, then we don’t have to tell you life happens. You need to have enough saved in case of an emergency, and certainly enough to afford your care if and when you’re faced with any health issues. This usually happens around 80 for most Americans, but could happen sooner.
It’s also important to note that the study found how much Americans believe they need for retirement increased 20% between 2021 and 2022. So who knows what 2023 might bring? Having a flexible goal will allow you to pivot when situations change.
Get some guidance
While these are solid rules of thumb to get you started, the best rule of them all is to seek expert advice. Especially if you count yourself among the one in four Americans who told Northwestern Mutual that they feel they don’t have enough saved for retirement.
It would be understandable if you feel unprepared. It’s a volatile time with a recession on the way potentially, and the country is still coping with the effects of the COVID-19 pandemic.
You may be done with work but feel like retirement is years if not decades away. However, many people are pleasantly surprised after meeting with their advisers about how doable it really is.
And either way, knowledge is power. Knowing where you stand is the first step in getting to where you want to be. Hopefully with a little guidance from these rules and your adviser, you’ll be kicking up your feet in no time.
Protect your golden years
Whenever you decide to retire, regardless of any rules of thumb you personally follow, the main deciding factor will be whether there's enough in your retirement fund to make it work. With the economy in such a volatile state amid high inflation and stock market uncertainty, your 401(k) or IRA — and your retirement itself — could be at risk.
You could try to adjust your retirement accounts for better protection, but there’s a lesser-known alternative that could pay off big.
A Gold IRA is a type of individual retirement account that allows you to invest in gold and other precious metals in physical forms, such as coins, instead of stocks, mutual funds and other traditional investments.
It’s a great alternative because unlike the U.S. dollar, which has lost 98% of its purchasing power since 1971, gold’s purchasing power remains more stable over time.
Opting for a Gold IRA gives you the opportunity to both diversify your portfolio and stabilize your finances — and gold tends to yield less risk than other alternative investments.
If you want to open a Gold IRA, there are reputable services that’ll let you roll over your current 401(k) or IRA into this new account. To qualify, you need to be over 59 years old and have at least $70,000 to transfer.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
