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about retirement

3 Important Questions To Ask About Retirement

October 20, 20236 min read

According to a 2018  Gallup survey, 66 is the predicted  average retirement age for Americans; however, there is no one right retirement age. The ideal age for you depends on many factors: personal preferences, lifestyle and the nature of your work. For example, if your job is physically demanding, early retirement might be logical, a more sedentary profession may keep you around longer.

Regardless of when you hope to retire, you’ll have to make sure you have sufficient savings and income to support yourself when the time comes. Retirement planning allows you to ensure you’ll be financially stable even if you don’t have a steady paycheck arriving every month.

Just how much do you need to retire securely, and when should you start saving?

A good financial advisor will help you come up with your personal retirement plan. This article can help you get started, covering everything from how much cash you need to what tools you can use to help you prepare.

When should you start planning for retirement?

It’s never too early to start planning and saving for retirement. That said, it’s also never too late! If you didn’t begin in your 20s, don’t let that discourage you from starting later in life. Start saving as soon as possible. Why? Savvy retirement planning gives your money time to grow, thanks to compounding — which essentially multiples your money. The sooner you save, the more money you’ll allow to compound.

Here’s an example of how it works: Let’s say you start saving at age 35, putting aside $3,000 annually in a 401(k) or similar tax-deferred retirement account. By the time you retire at age 65, you’ll have put in $90,000 of your own money. However, thanks to compounding interest, you’ll have much more. Assuming a 7% return on investment, that $90,000 will have transformed into a little over $300,000.

Bonus: Ready to ditch debt, save money, and build real wealth? Schedule a Complimentary 30-Minute call and let’s look at a plan.

How 401(k)s work

A 401(k) is a tax-deferred retirement account (click on that link for a simple explanation from Nerd Wallett) that allows you to save for retirement while enjoying tax advantages. Money that goes into a 401(k) is pre-tax. In comparison, if you put money into a normal investment account, some of it will go toward income tax. Essentially, you can save more with a 401(k). This also means you’ll have more money compounding — translating to more money in the long run.

However, be aware: early withdrawal from your 401(k) before you reach the full retirement age of 59 and a half (as of 2021), you’ll face stiff withdrawal penalties. But if you leave it there and don’t touch it until you pass the 59 and a half eligibility mark, you won’t face these penalties. You’ll just have the normal income tax to pay on the money when you withdraw it.​​

Another major perk of a 401(k) is that many employers will match a certain percentage of what you put into it, up to a certain annual limit. For instance, if you earn $80,000 per year and put 5% of your salary ($4,000) into a 401(k), a company offering 1:1 matching will likewise put in $4,000, doubling your investment. You can even automate contributions so you don’t have to stress about the process.  If possible always contribute the minimum your company will match.

How much do you need to retire?

For the average American, approximately $1.4 million should be sufficient for retirement. That said, everybody’s needs are unique. The 4% rule can help you figure out your retirement savings requirements. This states that you should be able to take out 4% of your savings annually without ever touching the principal (the cash you put in, which is different from the compounded earnings).

To determine what your 4% looks like, you’ll need to create a personal finance budget. Tally up all of your expenses, including rent, food, gas, health care, and utilities. This will reveal your annual expenses. Then, multiply that amount by however many years you plan to be retired. If you have $30,000 in annual expenses and plan for 25 years of retirement, for instance, you’ll need to save $750,000. This is the minimum to aim for.  These numbers are purely hypothetical and in todays economy you muct stay on top of your numbers!

While it might be supplemented by other funds (such as Social Security benefits), this nest egg can bring peace of mind. Plus, you don’t want to rely on retirement benefits solely. The monthly benefit from the Social Security Administration (SSA) won’t get you far, and diversifying your retirement income is essential

Bonus: Ready to ditch debt, save money, and build real wealth? Schedule your Complimentary 30-Minute Coaching Call here.

What about retiring early?

The average age of retirement is 66. But what about early retirement? More people are striving for FIRE (Financial Independence, Retiring Early). Although the baby boomer generation may have set the benchmark at 62, Millenials and Gen Z’ers plan to leave the workforce earlier than older workers. With smart and educated planning, this milestone is possible. It just takes research and dedication.

The 4% rule can also help you plan for FIRE, which you can use to set your financial independence goal. Think bout different methods to increase your income and put into retirement (after you are debt-free) talks more about how to achieve that goal, including earning more money (for example a side gig) investing in tax-advantaged accounts, and diversifying your investment portfolio. 

People who want to retire early may also want to consider cutting costs. Keep in mind that factors like location can impact the cost of living The cash that seems sufficient in small-town Utah or Vermont may not get you as far in an urban center like Washington, D.C. A growing number of Americans are even moving abroad for retirement, looking to countries with a lower cost of living, like Mexico pr Costa Rico.

Your journey to a wealthy retirement starts today

Even if you love your job, you probably don’t want to work forever. Most people plan on retiring by a certain age, giving them a chance to enjoy their later years and freeing up their time for other activities like travel. Whatever your retirement goals are, it’s important to start planning for them. Starting your retirement planning and savings early will increase the likelihood that you’ll be able to achieve financial freedom sooner.

To simplify retirement planning, know exactly what you will need each month. This allows you to manage your money in a way that includes guilt-free spending, giving you the freedom to lead the lifestyle you want while still controlling your finances. I can get you started.  Schedule a 30-Minute Coaching Session!

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Retirement Planning StrategiesFinancial Independence RetirementEffective Retirement Savings
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Sam McKeown

Executive Coach, Teacher and Trainer

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