Making the right choices on when to leave work will cover your financial needs throughout retirement.
Christy Bieber (TMFChristyB) Sep
16, 2020 at 9:15AM Author Bio
Timing
your retirement right is crucial because your decision about when to leave the
workforce is going to affect the amount of money available for the rest of your
life.
To
ensure you make the right choice, here are three key rules you'll want to
follow.
1. Know how your Social Security benefits will
be affected
You
don't have to claim Social Security benefits when you retire, but most
people do because they provide a much-needed source of income. If you're going
to start your benefits upon leaving the workforce, make sure you understand how
your age at the time will determine the amount you'll receive.
All
retirees have a full retirement age (FRA), which is
determined by their birth year and is between 66 and 67. If you retire before
your FRA, early-filing penalties apply each month
that reduce your standard benefit by as much as 6.7% annually during the first
three years ahead of FRA and 5% for each prior year. If you retire after
it, delayed retirement credits raise the
amount monthly, adding up to an 8% annual increase until age 70.
Once
you file for your benefits, you're generally committed unless you rescind your
claim within a year and pay back all that you've received, so the choice isn't
one to take lightly. Since Social Security will be an important source of
income, calculate the amount you'd get at different ages and decide what age is
ideal for you to start your checks.
2. Understand what your savings will do for
you
Social
Security alone isn't enough to live on, so you need supplementary money from
savings. That means you need to know how much your retirement investments will
produce. You can't just take as much money as you need from them, since this
could result in your account running out of cash quickly.
Instead,
decide on a strategy for choosing a safe withdrawal rate, such as following
the 4% rule. See how much income your savings will
provide using your chosen strategy and make sure it's enough to support the
lifestyle you hope to live.
3. Plan for the worst
Everyone
wants a retirement filled with travel and fun, but not everyone gets it. Health
problems can start sooner than you think, and both medical care and long-term
care can be far more expensive than you may imagine.
It's
important you make sure your savings can cover your healthcare needs as a
retiree, and that you have the right insurance coverage to keep those costs
down. To do that, shop for Medicare plans, compare Medicare Advantage versus
Medigap with traditional Medicare, and calculate the amount of savings you have
earmarked for medical expenses. Exploring the purchase of long-term-care
insurance can also be a good idea, as Medicare provides no coverage for a
nursing home or home care under most circumstances.
Expensive
medical costs aren't the only potential calamity you need to be prepared for,
either. There's a growing possibility that Social Security benefit cuts could occur
within the next 10 to 15 years. Consider how you'd fare under different
scenarios, including if there's a 24% reduction in benefits.
If
you find you're unlikely to be able to afford your medical expenses or that you
couldn't withstand even a small reduction in Social Security, you may want to
work a little longer to bulk up your savings, delay your Social Security
benefits claim, and reduce the amount of time your savings must support
you.
https://www.fool.com/investing/2020/09/16/3-rules-for-deciding-when-to-retire/
No comments:
Post a Comment