It’s hard to decide when is the best time to start planning for retirement. Should you work another few years? Perhaps this will help grow your savings a bit more. Will you take a financial hit from income tax if you retire now? Could you benefit from a more thorough financial plan first? There are many moving pieces to this process, but in all situations, now is the time to start.
Plan for Retirement Today and Watch Your Savings and Grow
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Time Matters When Planning for Retirement
Planning for retirement early offers security and ease for your future. The perks of planning for your future include relaxing, traveling, and even getting caught up on home improvement tasks.
None of this is possible without a retirement plan, though. The sooner you begin to plan, the more options you have for building a solid, financially effective strategy to help you do the things you want to during your sunset years.
The question is, when should you retire?
Do You Plan to Retire Early?
In the United States, there is no set retirement age. On the average, people consider themselves retired when they reach 63 years old. For the sake of benefits, though, retirement is much later, such as 66 years old. It may also depend on the definition of the state that you live in. For those with a Traditional individual retirement account (IRA), the mandatory minimum distribution is 70.5 years old. You can, however, start to withdraw without incurring penalties at 59.5 years old.
It is not uncommon for people to dream to stop working sooner rather than later. Achieving this goal is not impossible for those who have already started planning for retirement.
Retiring early offers some benefits. The most obvious is not to have to report to work each day. It gives you ample time to do the things you want to do. Even at the age of 55, most people have already been working for over 30 years. You may be ready to move away from the stress of a job and on to a more peaceful lifestyle.
Retiring early, however, also has its drawbacks. You have less time to grow funds in your retirement account. If you retire sooner, the income you have coming in needs to go further.
There are early retirement savings options, but you may still lack access to key sources of income, which may only be available at certain ages. Until they become available, you are more likely to fund your needs on your own. You may also incur penalties for withdrawing early.
An early retirement is an option if you have the means to overcome these limits. If not, giving yourself more time allows you to build a better retirement future.
Retiring Just On Time
You may hear about on-time retiring. This implies a person is retiring when expected. This generally occurs between the ages of 62 and 67. During this time frame, an individual has many more years of work under his or her belt. It may mean increased retirement planning time. The normal time to retire is not always the best choice for every person, though.
Retiring at this age is likely to give you ample time to live a long life outside of your working years. It may also help you have enough financial stability to achieve your goals during retirement.
One of the common arguments when retiring at this time is the age itself. You may feel too old to enjoy the fruits of your labor and the opportunities your savings opens up. Worse, you may already have pending expenses including healthcare. Instead of using the money to relax and live comfortably, your needs as a senior consume it.
Why You Should Plan for Retirement Now
One of the important reasons to plan for retirement early is to build a savings account. An individual retirement account (IRA), for example, helps you build savings and earnings while enjoying tax benefits. One of these is tax-deferred growth through compounding interest.
Starting an IRA is not difficult. First, you have to choose one of the many types of accounts available. Regardless your age or income level, there is hopefully one that will fit your needs. Second, you can choose a variety of investment portfolios. These can even include oil, real estate, and cryptocurrency.
You can also set up an IRA account for your non-working spouse or let your children (or another person) inherit it in the event that you pass away.
Building an IRA does not cost a lot of money. The maximum contribution is only $5,500 per tax year. For those who are older, they can give up to $1,000 as catch-up contributions.
When you plan to retire matters for an IRA and other savings accounts. As expected, the more years you are in the workforce, the more money you can put into your accounts. Give them more time to grow and appreciate.
If you start young, you become less vulnerable to market changes. If the stock market is not doing well, you have time to recover or move your account to a more stable portfolio and recoup your losses. Planning for retirement too late may mean not being able to maximize the potential of the retirement savings and earnings.
Knowing your preferred age to retire can also help you in the following ways:
- Learn how much of a nest egg you need to put away each year to achieve your goals
- Know how much money you will need to live comfortably during retirement years
- Choose the right retirement fund vehicles to help you reach these dollar amounts
- Gain confidence in your retirement because you know it is financially possible
Most of all, you can adjust your goals from here as you need to. Retiring means no longer having to work the way you do currently. What happens day-to-day depends on the person, though.
Some people only move to part-time work. Others may step into consulting jobs. Still, others imagine retiring on an island they own. What you do with your retirement is not the issue. It’s all about planning now, so you can enjoy your retirement later.
Assume you will live a long life. What will you do during this time? What will you spend money on each day or month? How much will you need for long-term care?
Once you define what your ideal goals are, you can begin planning for retirement. This gives you insight into how much money you need to achieve these goals.
There is no better time to plan for retirement than at this moment. This is the time when you are healthy and capable of making sound decisions. It is also a period when you are earning money and have the option to build a retirement fund. Planning today should also help you cope with changes as your financial needs evolve. You may not be sure when to retire but starting today, helps ensure the best options for tomorrow.
What is your plan for retirement? Tell us your strategy in the comments section below!