Are you ready to retire? Nearly half of Americans expect to retire in their 60s, found a GOBankingRates survey. You might already be that age and trying to decide if you’re ready to leave the workforce. Or, you might be much younger and hoping to kiss the 9-to-5 goodbye.
Whatever your age, retirement might be possible for you. It comes down to planning, preparation, the lifestyle you want and your definition of retirement. Or, you might want to continue working in some form or fashion — just on your own terms.
“One person might feel they need $100,000 a year to retire comfortably, while another may buy an RV for cash and be able to travel around on $1,500 a month,” said Dana Anspach, founder and CEO of investment advisory firm Sensible Money in Scottsdale, Ariz.
If you’re trying to figure out when and how to retire, here’s what could make it possible from your 20s to your 70s.
How to Retire Now in Your 20s
Retiring in your 20s seems like something only somebody who got a big inheritance or hit the Powerball jackpot could do. Of course, if you did invest your lottery winnings wisely, it could fund more than 60 years in retirement.
However, retiring at such a young age isn’t as unfeasible as it might seem.
“To retire in your 20s, your best bet is to dive into rental real estate at a very young age and begin acquiring cash-flow-producing properties,” Anspach said. “There is the potential for higher cash flows than what you might get from a traditional financial portfolio mix, and rent increases historically outpace inflation.”
Pauline Paquin was able to leave the corporate world in her late 20s thanks to income from rental real estate. She started saving money as a teen and had enough by the time she graduated college to purchase property.
“I built stream after stream of income until I could stop depending on a day job at 29,” said Paquin, who writes about early retirement at Reach Financial Independence. And, she was able to keep her cost of living low by retiring abroad to Guatemala.
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“For the adventurous person, moving overseas can make retirement far more affordable than it would be in the U.S.,” Anspach said. “There are many places where you can comfortably live on less than $2,000 a month.”
However, Anspach reminds people to keep in mind that $2,000 a month is going to require a nest egg of $600,000 or more. “To get an idea of how much you would need to have saved, multiply your annual expenses by 25,” she said. “Then, assume that you can withdraw 4 percent annually from that amount if your investments earn at least 6 percent annually.”
How to Retire Now in Your 30s
You might be able to retire in your 30s if you have a job at a startup or company with stock options. If the company’s stock has risen enough since you started working, you might be able to take the money and run.
Leon LaBrecque, CEO of LJPR Financial Advisors in Troy, Mich., said he had clients who were able to do this. “I actually had a couple that were very early Microsoft employees who did retire at 30 with about $3 million of Microsoft stock,” he said.
You also might be able to call it quits in your 30s if you’ve had a high income since your 20s, and have saved and invested a large portion of your earnings. That’s what Grant Sabatier did. He saved $1 million in five years from age 25 to 30.
Sabatier said he was earning an average of $300,000 annually during that time — and socking a lot of it away. Initially, he was maxing out the 401k he had through his job with a digital marketing firm. He boosted his income with side hustles and saved all of that income in an individual retirement account. Then, he launched his own businesses and blog, Millennial Money, and saved 60 percent to 70 percent of that income annually.
“My goal was to be able to cover my annual expenses, which are about $50,000 per year,” Sabatier said. “So with $1.25 million, that’s a 4 percent per year withdrawal rate, which is less than my expected 6 percent to 7 percent annual interest growth. I have enough to sustain me as long as I keep lifestyle inflation in check.”
To retire early, you need to have at least 25 times your anticipated annual expenses saved. “That’s if you want to fully retire, but a lot of people will want to continue to work and make money in some way,” Sabatier said. “So, you can semi-retire and factor in anticipated income into the calculation.”
You also need to take taxes into consideration. You’ll have to withdraw more than your annual expenses to cover your tax bill. Be aware that if you tap a 401k or IRA before age 59 ½, you’ll have to pay a 10 percent early withdrawal penalty on top of income taxes on the amount you withdraw.
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How to Retire Now in Your 40s
The same things that would allow you to retire in your 20s or 30s — income from rental property, stock options or ample savings — would make it possible for you to leave the 9-to-5 now in your 40s. However, since you have had more time on your side, you might have more ways to retire early now than when you were even younger.
For example, if you’ve built up a business, you might be able to sell it now and retire. Or, if you’ve been working for someone else since your 20s, you might have enough experience and contacts to retire in a non-traditional sense by doing consulting work on your own time, said Paul Jarvis, a certified financial planner and managing director at United Capital, a financial life management firm.
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“For instance, if they are looking to live a lifestyle of $60,000 a year, they may only need to generate part of that from investment assets and part from freelance work,” he said.
If you have a public sector job, you might have worked long enough by your 40s to start collecting a pension. For example, members of the military are eligible to receive a pension after serving 20 years. Doug Nordman, author of “The Military Guide To Financial Independence And Retirement” and founder of The Military Guide website, retired from the U.S. Navy’s submarine force in 2002 at the age of 41. However, he doesn’t rely solely on pension income. While serving, Nordman kept his spending low and saved aggressively in mutual funds to reach financial independence at a relatively young age.
Someone in their 40s might also be able to retire if they downsize to a small home, move to an area with a low cost of living or make some significant lifestyle changes, Nordman said. “The best way to reduce expenses is to track every penny of spending for a few months, and then to stop the spending [that] seems wasted,” he said.
However, there’s a big expense to consider if you retire early: healthcare. Without access to insurance through work, you’ll have to pay for healthcare costs on your own. That’s because most people aren’t eligible for Medicare until age 65.
“People with chronic medical conditions might decide that they need employer health insurance until they’re eligible for Medicare, or they’ll shoulder most of the risk with a high-deductible policy,” Nordman said.
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How to Retire Now in Your 50s
If you’re in your 50s, you might be able to retire and tap your 401k early without penalty.
“If the individual is over age 55 and no longer works for the company, they can withdraw from their 401k as needed without incurring the 10 percent penalty tax,” said Howard R. Pressman, a certified financial planner with Egan, Berger & Weiner in Vienna, Va. This is possible through a provision known as series of substantially equal periodic payments. Distributions must continue for at least five years or until your reach age 59 ½.
Even if you use this provision to access your 401k funds early, you still need to have enough in your account to sustain you until you can claim Social Security benefits in your 60s. Typically, you can expect to need to replace 80 percent of your wages in retirement, said Dominique Henderson, founder of DJH Capital Management in the Dallas area.
If you’re in your mid-50s and are making $100,000 a year, you’ll need enough in savings to replace about $6,500 income per month before taxes, he said. With an average life span, this means you’d need to replace that amount for 30 to 40 years.
“So if you do the math, it will be hard to retire without at least $2 million saved already,” Henderson said.
However, if you pay off your debt before retirement, you might not need to replace as much income. That’s because you’ll have fewer monthly bills to pay.
“Most planners will have clients keep total debt payments under 35 percent of gross income,” Henderson said. “The earlier you want to retire, the lower this percentage needs to be.”
How to Retire Now in Your 60s
Retirement becomes more feasible in your 60s — even if you don’t have ample savings or a job that offers a pension. That’s because you can start collecting Social Security as early as age 62. However, that’s not necessarily a smart move because your benefits could be reduced by as much as 30 percent by claiming Social Security early.
Even when you wait until your full retirement age — which can be 66 to 67, depending on when you were born — your monthly check isn’t that big. Currently, the average monthly Social Security benefit is just $1,360. The maximum benefit would be $2,687 if you were at your full retirement age this year, according to the Social Security Administration.
It certainly becomes more possible to live on Social Security alone if your mortgage is paid off or if you moved to a country with a lower cost of living. “I did have a client get a ‘pensioner’ visa to Panama, where she lived nicely for about $1,200 a month,” LaBrecque said.
Once you reach 65, you also have access to another government benefit that makes retirement more affordable: Medicare. You don’t have to pay a premium for Medicare Part A, but it covers only hospital stays. You have to pay a premium for Part B coverage for doctor’s visits, Part D coverage for prescription drugs or a Medigap policy to supplement Medicare coverage.
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How to Retire Now in Your 70s
If you’ve made it this far, you’ve likely increased your chances of being able to retire now. You’ve had more years to build an adequate nest egg. Plus, you won’t need your savings to last as long because you’ve already pushed retirement off until your 70s.
You also can get a bigger Social Security check if you haven’t started collecting benefits yet. You can increase your benefit annually for each year you delay collecting Social Security until age 70, according to the Social Security Administration. So if you’re 70 this year, the maximum payout you could get would be $3,538.
However, if you didn’t sign up for Medicare when you were eligible at 65, you’ll pay a late enrollment penalty that will increase your Part B premium, according to Medicare.gov. You’ll need to consider this as you estimate your expenses and the amount of income you’ll need in retirement.
Remember: Retirement can be possible whether you’re 70, 60, 50 or younger if you’ve taken the proper steps.
“At any age, the most important thing you can do is develop a plan,” Anspach said. “Figure out what you need to save or how to acquire rental properties. And every single month, take action steps that move you closer to your goals.”
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