You have now prepared your annual retirement budget. We suggest putting your budget through each of the tests below to see if holds up.
People are living longer than ever. In fact, according to an article published by USA Today in October 2014 (Source: http://www.usatoday.com/story/news/nation/2014/10/08/us-life-expectancy-hits-record-high/16874039/), life expectancy in the US reached a record high of 78.8 years in the US. Broken down by gender, that is 81.2 years of age on average for females and 76.4 years of age on average for males.
Take the income and expense totals from your annual budget, and multiply those numbers by the number of years you have left to live, and check whether your income still exceeds expenses. If you want to be even more conservative, consider that life expectancy has been increasing, and so you may want to bump up those averages by several years, especially if you are in good health.
Remember that the minimum age for collecting social security is 62. If you are planning on retiring before that age, make sure that your budget does not take social security payments into account until at least 62. Also keep in mind that while you are allowed to begin collecting social security at 62, that is not considered full retirement age by the Social Security Administration, and your benefits are reduced if you begin collecting prior to full retirement age.
|Full Retirement Age, or Age to Receive Full Social Security Benefits|
|Year of Birth||Full Retirement Age|
|1937 or earlier||65|
|1938||65 and 2 months|
|1939||65 and 4 months|
|1940||65 and 6 months|
|1941||65 and 8 months|
|1942||65 and 10 months|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
Assuming your full retirement age is 67, the table below shows the reduction in your social security benefit if you elect to start retirement benefits early.
|Age at which you start retirement benefits||Percentage reduction in benefits|
The rule of thumb for what you need of your pre-retirement income to live comfortably vary between 70% and 80%. The remaining 20% or 30% are work-related expenses that you would no longer be spending in retirement. These expenses include things like gas and other transportation and commuting expenses, work outfits and dry cleaning, and eating lunch out everyday. Beware that these work-related savings can quickly be eaten up by any expensive retirement activities, like travelling or playing golf. Compare your annual income from your budget to your pre-retirement income. If your post-retirement income is at less than 70% of your pre-retirement income, give some serious thought as to whether your budgeted numbers are realistic, and whether you can really be happy and live comfortably.
Article courtesy of 50 PLUS REPORT Online Magazine.