Our friends at Private Wealth Management & Consulting (PWMC) put together this helpful information on deciding when retirement may be right for you.
When Should I Retire?
Due to the influx of resignations in 2021 and early this year, many Americans are choosing to retire at an early age. Although an early retirement sounds like a much-needed farewell from a busy life in the workforce, the decision to retire should not be taken lightly. Many factors such as retirement benefits, cost of living, regulations from the IRS, and emergency savings must be taken into consideration. To help you determine when is the right time to retire, we shared our tips for calculating retirement expenses and analyzing retirement benefits.
Analyze your retirement benefits:
Federally regulated retirement benefits such as social security and Medicare have minimum age requirements. To receive social security, you must be 62, and to receive Medicare, you must be 65. Therefore, if you choose to retire at an earlier age, you must account for more costly health care expenses and a lack of social security checks.
Calculate your retirement expenses:
A simple method to estimate your retirement expenses is by determining your current average monthly cost of living. Then, add and subtract expenses that will come or disappear once you retire to this number. Some expenses you may need to add include any payments that were covered by your employer, home-based care, nursing services, increased health care costs, travel costs, and transportation services. Some expenses you could potentially subtract include housing if you paid off your mortgages and car payments if you decide to sell your vehicle.
New early retirement rule from the IRS:
If you analyze your finances and find that you’re capable of retiring at an early age, there’s a new IRS regulation that benefits you. According to (Parrish, 2022), the January pronouncement from the IRS makes the early withdrawal penalty a little less troublesome. Retirees who are leaving the workforce before age 59½ will now be able to take out more money each year without incurring a 10% hit (para 3). However, once you decide to receive a distribution, you’re committed to withdrawing until your account runs out. As a result, retiring early could cause you to deplete your savings if you don’t plan carefully.
Hire a financial professional:
We understand that choosing when to retire is a daunting and nerve-racking process. However, ensuring financial security throughout your old age is critical. If you find yourself in need of professional assistance as you take the final steps toward retirement, call Private Wealth Management & Consulting today! Our financial experts can analyze your expected cost of retirement living in conjunction with your savings and expected benefits to determine an appropriate retirement age.
To learn more or schedule an appointment with PWMC, visit our Financial Planning page.
Parris, S (2022, February 14). Retiring Early? A New IRS Rule Could Mean More Money in Your Pocket. Kiplinger. Retrieved February 18, 2022. https://www.kiplinger.com/retirement/604203/retiring-early-a-new-irs-rule-could-mean-more-money-in-your-pocket
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