28 Aug How will I know I can afford to retire?
Q. How will I know that I can afford to retire? I’m still working but I’d like to stop as soon as possible. I’m 63.
A. There are many items to consider before you retire.
You need to start with an estimated retirement budget. Sit down with your current bills and compare them to your anticipated retirement bills. Be sure to include extra expenses if you plan to vacation more, and remember that you’ll have more time on your hands. That means you’ll have more time to spend more money.
Health insurance will also be a major expense, and until you reach age 65 and are eligible for Medicare, you’ll need to finance your own policy, said Alan Meckler, a certified financial planner with Cornerstone Financial in Succasunna
“You will need to Purchase Part B Medicare and most people purchase a Medicare supplement and prescription Part D,” he said. “That will cost you approximately $400 per month.”
Then you need to look at your retirement income sources.
Let’s start with Social Security. You have to decide when you take benefits, and how that will impact the amount of money you receive.
You can start as early as age 62, but for you, your normal retirement age is 66, Meckler said. If you take benefits before 62, you’ll get a smaller benefit, and if you wait until age 70, you’ll get a larger one.
“For each year you wait to start your benefit past age 66, you will receive an 8 percent increase per year,” Meckler said. “If you have a spouse, you will also want to consider her benefit.”
For many people, Social Security benefits are their biggest form of guaranteed income when they retire, so don’t take your benefit choice lightly.
Next, look to see if you will receive a pension or any other guaranteed form of income.
Now it’s time to turn back to your anticipated retirement budget to see if Social Security and other guaranteed income will pay the bills. If not, you’ll need to turn to your investment accounts.
“If you assume a simple rule of thumb and do not spend more than 4 percent of your assets when you retire, then for every $1 million, would generate $40,000 per year,” Meckler said.
Consider hiring a financial planner for a once-over before you make any of these important decisions. It’s a small investment to make given that your choices will impact your long-term financial happiness.
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This story was first posted in August 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.