Ideally, you should start saving for your retirement as soon as you begin your first “real” job. As you get closer to retirement age, you will undoubtedly start looking forward to leaving the stress and pressure of the work world behind you. You may even want to speed up the clock so you can reach retirement age sooner. Although we typically refer to “retirement age” as age 65, the truth is that the age at which you decide to retire is not set in stone. If you are tired of the “rat race,” and are ready to get out, you may start asking yourself “ Can I retire early? ”
Factors to Consider When Answer the Question “Can I Retire Early?”
For some people, an early retirement is a very real possibility. In order to decide if you are one of those people you need to take a number of factors into consideration. Those factors can typically be broken down into two important categories:
- How much will it cost you to retire?
- Life expectancy –– first, you need to consider your life expectancy. If you are close to retirement age right now, you can expect to live, on average, to age 84 if you are a man and age 87 if you are a woman. One in four people, however, will live past age 90 and one in 10 past age 95. For a more individual estimate, use the Social Security Life Expectancy Calculator or try the “How Long Will I Live?” quiz.
- Living expenses during retirement – although it is impossible to know, with certainty, how much you will need for day to day living expenses during your retirement, experts tend to agree on some basic formulas that will give you a good idea of what you will need. Take 80 percent of your average monthly expenses today and multiply by 12 for your yearly expenses. Then multiple that by the number of years you are expected to live into your retirement years.
- Long-term care costs – at age 65 you stand a 50 percent chance of needing long-term care (LTC) and by age 85 a 75 percent chance. You either need to have funds set aside to pay for that care or you need to include Medicaid planning in your estate plan to ensure that you qualify.
- Inheritance – decide on a rough estimate of how much you hope to have left to pass down to your loved ones at the end of your life.
- How much is available to support you if you retire?
- Social Security retirement benefits – the amount of your Social Security retirement benefits will change – much more than you likely realize – based on when you retire. Assuming your full retirement age is 65, for example, and that you will receive $1000 per month in benefits at that age, your monthly benefit will change if you retire earlier or later. Retiring at age 62 would reduce your monthly benefit – forever – to just $750 while working for another 4 years would raise it to $1,240. Over the course of a year, that’s a potential difference of almost $6,000!
- Pensions and employer sponsored retirement plans – although pensions are considerably less common these days, some larger employers do still offer pension benefits to employees and/or other employer sponsored retirement benefits.
- IRAs, savings, and assets – because so few employers still offer a heathy retirement benefits package, many workers are now taking matters into their own hands by contributing to an IRA or saving for their own retirement in other ways.
Once you have analyzed all of these factors, you should be able to sit down and figure out whether you can financially afford to retire early or whether you are going to have to wait until full retirement age – or even beyond – to retire.
If you have additional questions or concerns regarding when you can retire, contact the experienced Illinois estate planning attorneys at Hedecker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.