Saint Ann’s Retirement Guide: Can I Afford To Retire?
So, you’re thinking about retiring? Congratulations! You’re approaching one of life’s most significant milestones. With such a milestone comes the question: “Can I afford to retire?”
In America, the average person retires at 62 years old. But you must be at least 67 to receive full retirement benefits from the federal government.
You need some money saved up to retire early at 62. But, of course, you’ll need even more to retire earlier than that.
So, what’s the magic number? How much money do you need so that you can afford to retire?
The answer is complex. Every person and situation is different. However, some key factors can provide clarity.
Here at Saint Ann Retirement Center, we’ve aimed to answer some of your most pressing questions to help you answer the question: “Can I afford to retire?”.
How much money does the average person need to retire?
$1,000,000 (one million dollars) has been a number floated around by retirement experts for years, and it’s one you’ve likely heard of online.
But what can one million dollars in retirement savings give you? According to Merrill, a Bank of America company, a retirement savings account valued at one million dollars gives you an annual income of roughly $40,000.
This falls in line with another notable retirement expression, the four percent rule. This rule says you should only withdraw four percent of your retirement savings, or nest egg, each year.
Since your retirement savings account is tied to an index fund, it will steadily grow each year. Four percent, as determined by certified financial planners, leaves enough money behind to replace itself. So the account’s annual growth matches the amount you took out.
Take more than four percent, and your account’s annual growth won’t be enough to replenish itself. Take less, and you won’t have enough to live off.
But is $40,000 a year enough for you and your family?
Every year, that answer is increasingly “no.” However, depending on your lifestyle and accustomed standard of living, $40,000 might work.
Could you manage working for a few more years?
The last thing someone wants to hear when they’re approaching retirement is having to work a little longer.
Unfortunately, it is a great way to add a little more cushion to your savings.
Working until you can receive full retirement at 67 has several benefits.
You will get bigger social security checks.
Social security income checks are calculated using the 35 years of our highest income. So if you’re earning more now than you did early in your career, then working more higher-income years can raise the amount on your checks.
This is even better if you haven’t yet hit 35 years. If you retire before you have 35 years of income, those zeroed years factor in and can tank your monthly income check amounts.
You’ll have more time to save.
Working additional years gives you more years to save and add big chunks of money to your retirement account.
And since you’re anticipating retirement, you can save more than you usually would.
Your accounts will get additional years of compounding interest.
Compounding interest is perhaps the most essential part of your retirement portfolio.
Say your portfolio has a 5% compounding interest rate, and you start with $1,000. After a year, you’ll have $1,050. But now you get 5% interest on the $1,050. A year later, you’ll have $1,102.5. Another year will make $1,157.6.
If your retirement account has hundreds of thousands of dollars, these percentile increments will be substantial. And it will mean even more over 30+ years.
You’ll have fewer years of withdrawals.
Lastly, you’ll have fewer years of withdrawals. Once you begin withdrawals, you stop adding to your account, and your account’s value plateaus.
The fewer years you withdraw, the more money you can take out annually.
Could you manage forecasted inflation?
Inflation is a hot-button topic right now. Inflation is hitting Americans hard. Additionally, the stock market has taken a hit. Many aspiring retirees are seeing their retirement portfolios shrink and the devaluation of what’s left behind.
People who thought they could afford to retire a year ago find themselves unable to today.
Let’s look back at the $40,000 figure. If you retire today and live off $40,000 a year, you might maintain the standard of living you are used to. But what about ten to fifteen years from now?
$40,000 in the future won’t be what it is today. It’s not even worth what it was a year ago.
Take inflation into serious consideration when determining if you can retire or not.
Do you have substantial debt?
“Can I afford to retire if I have substantial debt?” If you have debts, you should consider holding off on retirement. Every dollar you owe in debt is a dollar less in the income you receive from retirement account withdrawals.
Additionally, having debt without a reliable source of income is a risky financial move.
Do you have a reserve for significant expenses?
You may face some considerable expenses around retirement age. For example, healthcare costs like hospital bills, ambulance fees, medications, health insurance, and surgeries can cost hundreds of thousands of dollars.
Do you feel comfortable taking on those expenses with how much you have saved up?
If so, proceed confidently.
Do you struggle to pay current bills?
Are bill payments like rent, a mortgage from real estate, and utilities hard for you to stay up to date on?
If so, you’re likely neglecting your savings account to prioritize bills. Unfortunately, this could be a bad sign for your retirement prospects.
“Can I afford to retire?” Your ability to retire depends on your desired standard of living if you anticipate significant expenses, where you live, and how much money you have saved up.
If you’re interested in retirement and are looking for a place to live, consider Saint Ann Retirement Center. We offer assisted living and independent living options for our residents.
Our facility boasts excellent amenities, freshly-cooked meals, and professional staff who can help you live comfortably and independently.
If you’re interested, visit the rest of our website or give us a call to schedule a tour today!
Saint Ann Retirement Center offers the best senior living options for retirement in Oklahoma City. Assisted living and independent living accommodations that enhance the life of individuals looking for support and comfortability as well as a variety of amenities to keep the community active and engaged. Saint Ann is owned and operated by The Catholic Archdiocese of Oklahoma City, a not-for-profit Christian organization.