When can I retire?
Trying to figure out whether you can afford to retire is like putting together pieces of a financial jigsaw puzzle. First, you need to estimate how much you'll spend in retirement. Second, you must consider the income you'll collect in retirement from pensions, Social Security and the amount you can afford to draw from your personal savings or other sources. Taxes and inflation play a huge part in how much money you will need in retirement as well.
The idea is to assemble the various pieces, and then see whether the picture of retirement life that emerges is acceptable to you.
We can review your current plan and by using the current life expectancy tables we can figure out if your money will survive as long as you will.
Will pensions and Social Security be enough?
Unfortunately, probably not.
When you look at the numbers, you should factor in other sources of income in retirement, including Social Security and pensions, if you're lucky enough to have one. Your personal savings will have to generate enough income to cover any shortfall.
You can check your estimated Social Security benefits by using the government's Social Security Online calculators. Current or former employers can provide estimates of any pension benefits you might receive when you retire.
Where should I save my retirement money?
Tax-favored retirement accounts, such as IRAs or 401ks, are common places to save for your retirement. These accounts can be favorable if your employer matches the amount that you put in. These accounts are tax-deferred, which can work for you or against you.
Tax-free retirement accounts like Roth IRAs or Roth 401ks are a place where you can grow your money tax-free. You pay the taxes now, and then when you withdraw it for retirement, it's tax-free. These account can work for you or against you.
Alternative tax-free accounts allow you to grow your retirement tax-free. You pay the taxes now and then when you withdraw it for retirement, it's tax-free.
How much money will I need in retirement?
Ah, the key question. One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye. But if you plan to build your dream house, trot around the globe, or get that Ph.D. in philosophy you've always wanted, you may need 100% of your annual income - or more.