![]() Most things cost some money, which is why Saturday is often the most expensive day of your week." 6. Some things might be work around the house. “Once you don't work, you wake up and look for things to do - basically, how we all feel on Saturday. "Every day is Saturday,” says Sean Pearson, a certified financial planner in Conshohocken, Pennsylvania. According to EBRI, 26 percent of retirees say their spending on housing, health and medical expenses are higher than expected. With inflation running at a hot 5 percent the past 12 months, your spending plans might need considerable revising. Morgan Asset Management study found that there tends to be a “spending surge” by new retirees on travel, home renovations or relocation, and other retirement-related lifestyle changes that levels off after two or three years. But at least in the early years of retirement, when you're younger, healthier and newly freed from the constraints of work, you could very well spend as much as or more than you did before retirement. After all, you won't be shoveling money into your retirement account, commuting every day and, for that matter, paying Social Security payroll tax, assuming you have no more earned income. You'll spend more money than you thinkĪ typical rule of thumb is that you'll spend about 80 percent as much in retirement as you do when you work. "With improved health care, many people are living longer than the national averages,” says Angela Dorsey, a certified financial planner in Torrance, California.ĥ. And for couples who make it to 65, there's a 25 percent change that the surviving spouse lives to 98, according to the Society of Actuaries. A man who retires at 55 will have to stretch his savings for 25.1 years, rather than 17.8. You may have a long, long life ahead of youĪ woman who retires at 55 will have to make her savings last for 28.6 years, on average, compared to 20.4 years if she retires at 65. The real growth comes from another 10 years’ worth of interest earned not only on all the principal you contributed but also the interest earned on the interest that has compounded for four decades. Why? The extra decade's worth of contributions helps, but that only adds up to $30,000. In that scenario, you'll have about $464,000, nearly double. Seemingly not a bad return on your $90,000 in contributions.īut let's say you work 10 more years and retire at 65. If you sock away $250 a month - $3,000 a year - from age 25 to age 55, you'll have about $237,000 when you retire, assuming you make no withdrawals and earn an average 6 percent annually on your investments. Time is your friend when you are saving for retirement, but not when you are spending. You sacrifice the power of compounding interest If, for example, you withdraw $20,000 from an IRA before age 59 1/2 and are in the 15 percent federal tax bracket, you'll pay $5,000 in taxes and penalties, leaving you with $15,000. ![]() “There are some options for getting IRA money before 59 1/2, but it's tricky and can cause major penalties if done incorrectly,” says Matt Stephens, founder of AdvicePoint in Wilmington, North Carolina.Īnd unless you have a Roth IRA, which is funded with after-tax contributions, you'll owe income taxes on the amount you withdraw from traditional accounts funded with pretax contributions. If you retire before 59 1/2, you'll usually pay a 10 percent early withdrawal penalty from most tax-deferred accounts, such as traditional IRAs and 401(k) plans. Tapping your nest egg early can be costly For a single person with income of $54,360, for example, a mid-level silver plan would be $385 a month, or $4,620 per year. Current law says your insurance costs can't be more than 8.5 percent of your household income. "Private health insurance before Medicare kicks in costs an arm and a leg,” says Brian Schmehil, director of wealth management for the Mather Group in Chicago. Until then, you'll need an alternative - and it won't come cheap. Medicare, the federal program that provides health coverage for more than 61 million older Americans, doesn't start until age 65. Here are a few things to consider before you decide to retire early. For many of those who do take the plunge, the reality of early retirement can turn out to be far different than the fantasy. Just 13 percent of today's workers plan to retire before age 60, according to an Employee Benefit Research Institute (EBRI) survey. Unfortunately, early retirement isn't for everyone. And as you sway in the car next to a man who has biked four hours to the station, you might be thinking about early retirement. ![]() En español | Even if you love your job, there are times when you'd rather be alphabetizing the spice shelf than riding a packed train alongside hundreds of sniffling fellow commuters.
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