Is 61 The Perfect Time to Retire?

 

A recent survey from Bankrate showed that the average American believes 61 is the perfect age to retire. The same survey, however, polled 10 certified financial planners who thought it wise to wait longer.

 

What Age is Best?

Despite 61 being what most Americans believe to be the perfect age for retirement, financial experts say that people should plan to wait until at least 63 – or, if you can, longer. In fact, one in five experts state that you should wait until 70 if your health and job industry allow.

The reason is that people are living longer than they were in past generations – not to mention that the cost of living has increased exponentially since say, the time our grandparents would have retired. A longer lifespan at a higher cost means that potential retirees need a larger nest egg. This makes taking advantage of full social security benefits, not to mention extra years to stash away money.

Importance of Delaying SSI

The important thing here is to delay social security benefits until age 70. So, even if you only work just enough to pay for your living costs after the age of 62 and don’t save anything over or beyond that, it is still a promising idea to wait for full retirement until age 70.

Another key factor here is that potential retirees should begin thinking about reducing their living costs. You may consider either selling your home (if you own one) or renting a smaller apartment. If you decide to not sell your home, perhaps consider renting out a room for additional income.

Paying down any existing debts before retirement is also important in reducing overall recurring bills. Your mortgage, car loans, student debts, credit card debts, etc. should all be paid off prior to your after-working years.

If You Must/Decide to Leave the Workforce Earlier

If you do decide to leave the workforce before age 70, consider using some of your savings to postpone withdrawing social security benefits for as long as possible. The “ideal age” of 70 isn’t always realistic for some people, while others simply don’t want to spend that much of their life working.

In this event, experts suggest thinking about how much your SSI would be. If the estimated amount of social security benefits each year were (should you retire at age 65), say, $25K, then take that much out of your savings per year for the next five years. Then, once you reach the age of 70, you can fall back on your social security benefits as your primary income while relying on your savings only as secondary income.

Preparing Early

The most important thing you should do is begin preparing for retirement as early as possible. If you can, start saving in your early to mid-twenties. If you begin to save later, you will need to put away more money each month to cover the costs of living.

For example, if you begin saving $200 a month at the age of 22 until you reach 62, you will have saved $96K without considering interest. If, on the other hand, you save $400 a month between the ages of 42 and 62, you will end up with the same base amount. The difference? Your finances will be tighter during your working years because you need to put more away each month. Also, your initial investments will have less time to build interest, so you’ll end up with less anyway.

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How to Stay Active During Your Retirement Years

 

Staying active is vital for both the physical and mental health of retirees. It does not only help to manage or prevent numerous physical ailments, but also combats depression. Unfortunately, one of the biggest pitfalls of retirees is the lack of activity. So how can you stay active during retirement years? Here are just a few ideas.

 

Money Makers

Sometimes staying active can also help bring a little extra income into the home. This serves the dual purposes of staying healthy and stretches your retirement income a little. A few examples of how you can do this in your retirement years – without hurting your SSI benefits (like a full-time job would):

  • Freelancing from home
  • Working part-time, one or two days a week
  • Selling homemade items online or at craft shows
  • Babysitting (if health allows) a few days a week

Clubs, Organizations, or Groups

Joining a club, organization, or group can definitely help people in retirement to keep socially active. Depending upon what the exact group is, retirees can also stay between minimally and moderately active. A few ideas of ways to stay active in this category include:

  • Joining a gym with senior-friendly workout groups
  • Volunteering for a local organization you care strongly about
  • Creating a weekly or monthly lunch group with friends and family members
  • Playing bingo
  • Becoming active in your church or joining a local church
  • Volunteering as a room mother/helper at your grandchildren’s schools/extracurricular organizations

Hobbies, Etc.

Practicing a hobby can serve numerous purposes. Not only will it take up some of your free time, but doing something you love is great for your mental health. A few ideas of hobbies you might decide to take up (or resume) include:

  • Sewing/knitting/embroidery
  • Fishing/hunting
  • Cars
  • Woodworking or metalworking
  • Photography
  • Hiking/walking/swimming (if health allows)
  • Scrapbooking
  • Traveling
  • ANYTHING you love

Making It Work

Incorporating a few of these ideas into your routine will work best for staying active both physically and socially. Most importantly you should have some kind of routine that forces you to get out of the house or up out of bed. This is your greatest ally in combating the depression so many retirees fall victim to me.

Let’s say that you decide you’d like to work part-time, on Monday’s and Tuesdays. Then you’d like to work on your photography, volunteer at your church, and visit your children once a week. Your schedule may then look like this:

Monday – Work

Tuesday – Work

Wednesday – Photography

Thursday/Friday – Free

Saturday – Visit Children

Sunday – Volunteer at Church

What makes this schedule so great is that there is a lot of flexibility. If you didn’t want to do photography on Wednesday but would rather catch up on your favorite shows, you can. If you’d like to visit your children on Friday instead of Saturday, you can.

It also has some stability to it. You know that you’ll have to leave the house Sunday through Tuesday, so even if you do nothing else for the rest of the week you will have at least done something.  

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How Budgeting in Your Early Years Can Affect your Retirement Savings

 

Habits are a powerful thing. So powerful, in fact, that you often forget why you began doing things that way to begin with. This can be the case for those who have reached the age of 50 with no retirement savings when that time is twenty (or less) years away.

The budget you set up in your early twenties or thirties may still be the one you use today. An example might look like this:

  • 40% housing (mortgage or rent)
  • 20% utilities
  • 15% transportation
  • 15% groceries
  • 10% other (outings, projects, etc.)

But that doesn’t make sense anymore because that budget only allows you to live week to week. There isn’t any shame in having done this, of course. Many families with children live week by week, or paycheck to paycheck. Now, however, you need to adjust things to compensate for a looming retirement date.

 

A New Budget When Starting at 50

The very first thing you need to do when creating a new budget for saving is to decrease other spending areas. If possible, start by downsizing your home by 5-10% of your budget. Either move into a smaller residence or rent out your spare bedrooms to increase your income. This should naturally decrease your utilities by about 5% also.

Now you’ve created (at the high end) 15% of your income that can be saved. What’s next? Try reducing grocery costs to 10% by using coupons, purchasing cheaper brands, or cutting unnecessary items from your budget. Finally, learn to do without. Cut “other” spending to 5% and go out less often.

You now have 25% of your budget free to save towards retirement over the next 15 to 20 years. If your monthly income is, say, $2K, that is $500 a month you can now save. By retirement you’ll have (before interest) $90K to $120K.

But that isn’t enough. Consider other ways to increase your savings. Two prime examples include placing all of your overtime earnings into savings and any income tax refunds you receive. Even 75% of the later could prove significant.

The following numbers are just ballparks, of course, and might not reflect your situation. But let’s say you earned about $500 in overtime earnings over those 15 to 20 years and received $1,000 back on  your income tax refund each year, of which you saved 75% ($750). Those two things, over time, equal an additional $18,750 to $25,000 for retirement.

A Better Budget For Your Early Years

If you’re lucky enough to be reading this pre-50, then the best thing you can do is begin saving for retirement NOW. Don’t get wrapped up in how much. Even those young families who are living paycheck to paycheck can squeeze a small something out.

Let’s say you only manage $5 a week between the ages of 20 and 50. That ends up being $7,800 before interest. If dual-income couples each save $5? That’s $15,600. It may not seem significant, but when you reach 50 it is better to have something saved versus starting entirely from scratch.

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Does Working A Few Extra Years Really Help?

Millions of potential retirees are postponing the big “end of work” date past age 65. Long the gold standard for retirement, many people are now waiting until age 70. With people living up to two decades longer than previous generations they must plan ahead for a much longer retirement. But does working a few extra years really help?

 

Delaying Social Security Benefits

The biggest factor in delaying retirement is ensuring the full social security benefit amount. Although you can begin receiving benefits at the age of 62, it’s wise to wait until age 70 when you must take benefits. After the age of 62, benefits increase yearly by around 8%.

This can make a drastic difference. If you retire at age 62 with $800 in monthly benefits, you could retire at 63 with $834 or at 64 with around $900. This will continue growing until age 67, when the benefits in this situation would total just below $1,200 a month. That’s an increase of around $400 extra per month, or $4,800 a year. This could make a noticeably big difference in how well (or not) you are able to live come retirement – and how far your savings can stretch.  

 

Increasing 401(K) and Other Retirement Plans

If you have a 401(K) provided by your employer, it’s a promising idea to continue contributing towards it for as long as possible. Plus, many companies match a certain amount of their employee contributions, thus giving you a bit more “bang for your buck.”

Let’s say you’ve decided to contribute just 2% of your weekly earnings into your 401(K) and your employer matches 1%. The Bureau of Labor Statistics states the average American worker makes roughly $850 a week. Therefore, $25.50 would be placed weekly into your retirement account. Postponing retirement just one year could increase funds by $306. Postpone it for five years and you could have an additional $1,530 to retire off.

 

More Savings

Beyond social security and 401(K) plans, each year you’re able to place more of your own money into a savings account, the better. Many experts suggest increasing the money saved after age 62 to a minimum of 25% of your income. This, of course, is based off the need to downsize and pay off any debts like mortgages or car payments pre-retirement.

Using the same number in the paragraph above, 25% of the average American’s salary would equate to $11,050 in savings yearly. If this was successfully executed from age 62 to 70, you would have an additional $88,040 for retirement – even before any interest was earned.

 

Does It Make A Difference?

When asked if postponing retirement for just a few years makes a difference, the big answer is yes. Even a single year could noticeably increase retirement savings and social security benefits. Postponing from the age of 65 to 70? Those five years make all the difference between a comfy retirement and living paycheck to paycheck.  

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