Age of Retirement: Can You Afford to Quit?

Age of Retirement: Can You Afford to Quit?

More and more, the burden for funding the golden years in on you

Where does the average retiree’s income come from? For those pulling in more than $20,000 a years in retirement income, the largest chunk of the pie, 39 percent, comes from personal savings and investments. Employer pensions contribute 15 percent and continued employment by one or both spouses provides 26 percent. Only 20 percent comes from Social Security benefits, according to the Treasury Department.

Most workers use a combination of pension, Social Security, and personal savings to get them through their retirement years. But both Social Security and pensions are undergoing changes. Social Security is being taxed and has a ceiling. And employers also are cutting back on traditional pensions and moving toward 401 (k) plans, which workers fund through their own salaries. It’s clear that the onus is increasingly on workers to fund their own retirement.

The simple fact that Americans are living longer and more active lives means you’ll probably need more than your parents did to finance retirement. What’s more, research shows that most baby boomers will retire at living standards below those enjoyed by their parents, who have been able to count on generous government benefits, company pensions, and booming securities and real estate markets.

Red, yellow and white flowers. Dark plants in background.

Just how much will you need to retire comfortably? A good rule of thumb is that you’ll need 60 to 80 percent of your pre-retirement annual income to maintain the same standard of living during retirement. Once you’ve calculated that number, you can figure out if your retirement nest egg, including 401 (k)s and other pension plans, will generate enough income for you to retire. Consult tables developed by different retirement planning forms that will tell you if you’re putting enough aside to retire.

If you find you’re not saving enough, how you face up to that shortfall depends on many factors, including your age, of course, and how you are allocating your assets. You may need to shift investments into more aggressive growth funds, if you have a long way to go before you retire, for example. Retirement experts also suggest the following:

Take full advantage of your 401 (k) plan. Contribute the top allowable amount.

Consider an Individual Retirement Account, if you are younger than 70-and-a-half and have earned income. You can sock away a determined amount into an IRA every year. Your money grows tax deferred and the contributions often are fully or at least partly tax deductible.

Funding a Longer Lifespan

Those looking toward retirement should keep in mind that age 65 is not the finish line. Better to focus on how long you are likely to live, say retirement experts, then build in lots of flexibility and contingency plans.

If you are self-employed, you may be able to save as much as 25 percent of your earned income, in an SEP-IRA or a Keogh. You can deduct contributions from your taxable income. And again, earnings are tax-deferred until you take the money out.

A smart and painless way to save: Have your investment deposited automatically from your paycheck, checking account, or money market fund.

Set realistic goals. Stick to them and monitor your progress regularly.

Don’t think it is going to be easy – especially if you’re already 40-something. According to Merrill Lynch, the investment firm, the average baby-boomer household saves at only one-third the rate needed to finance a comfortable retirement.

Staying on Track: It’s never too soon to start planning retirement,, nor is it ever too late. Here are the financial and legal mileposts you’ll encounter as you look down the road and at what age you should expect them.

Age 55: Minimum age for many senior communities. If you retire or lose your job, you can withdraw from your Keogh 401 (k), and profit sharing without tax penalty or having to annuitize. You can sell your house tax-free onn a capital gain.

Age 59-and-a-half: You can withdraw a lymp sum from certain pension plans – IRA, Keoogh, 401 (k), without a tax penalty.

Age 60: You qualify for senior discounts from stores, hotels movies, etc.

Age 62: You qualify for Social Security, but you’ll get more if you wait until age 65.

Age 65: If you’re getting Social Security benefits, you are automatically enrolled in the Medicare hospital insurance program. If you’re not on Social Security, you must apply for Medicare coverage.

Age 70: Social Security benefits rise, if you’re just starting; personal income – regardless of how much – doesn’t reduce Social Security benefits.

Age 70-and-a-half: You must start withdrawing from private plans, like IRA and Keogh, by April I or face tax penalties