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While the "Great Resignation" and "quiet quitting" might be sweeping offices for younger Americans, older Americans may have a similar, if more permanent idea in mind these days. With summer approaching and vacation plans beginning to take shape, some may be asking themselves whether they can retire. Like, right now.
That's not to say early retirement is a new trend at all, as the pandemic nearly forced many Americans' hands. As of 2021, about 50.3% of American adults over 55 were out of the labor force and into retirement, according to a Pew Research study. That's a significant jump from 48.1% in 2019.
But here's the issue. While retirement is rising, so are prices. As of 2021, the U.S. Census Bureau says the mean retirement income for Americans 65 and up was $73,288. Should you live for another 30 years, that means you'll need $2,198,640 - and that's without inflation.
Before you panic, let's look at three tips you can use to help guide your retirement decision.
Many financial advisers recommend that retirees live by the rule of thumb of taking out 4% of your savings each year. This is the amount you can withdraw no matter what and hypothetically still have your retirement savings last another 30 years.
The main question here is whether this will offer you enough income, when combined with Social Security, pension and all the rest. If you have $500,000, that would only be $20,000 per year. Yet if you have $2 million, that would be $80,000.
That's why, no matter what your 4% adds up to, you want to make sure you're taking every measure to stretch it out.
Start by taking a look at your monthly spending and finding areas where you can cut recurring costs. You likely pay your car insurance and homeowners insurance bills every month without even thinking about it, but by shopping around for rates from other insurers, you may be able to save yourself hundreds of dollars a year*.
To save yourself some time, use an online marketplace called SmartFinancial*, which will sort through over 200 insurance companies to find you the lowest rates available in your area.
It's absolutely free to see your options, and the entire process only takes a few minutes - just answer some quick questions* to help determine your eligibility and you'll be able to start comparing rates.
This next rule of thumb deals with the tax implications of retiring early. While some potential retirees will have plenty of savings, it won't be beneficial to retire early if you end up paying normal income tax. This is the case for those retiring after 55.
Usually, you'd face a 10% tax withdrawal penalty for making a withdrawal from a tax-qualified retirement plan like a 401(k). But for workers who have an employer-sponsored 401(k) plan, the IRS allows anyone over the age of 55 who decides to leave the workforce to start drawing penalty-free distributions from that plan.
It's also not beneficial to retire early if you're still paying off debts. To make sure you're in the best possible position when that time comes, you'll want to have settled as many of your outstanding debts as possible.
To expedite this process, you can use a free service called Credible to consolidate your debts into one monthly payment*.
Rather than worry about multiple bills that each have their own minimum payments, deadlines and interest rates, you can take out a new loan with a lower interest rate and use it to pay off your other debts immediately*.
You'll then only have to make a single payment each month, and the lower rate will potentially save you a huge amount in interest - more money that you'll be able to set aside for retirement.
A recent survey by Northwestern Mutual found that Americans believe they need $1.25 million to retire comfortably today and continue receiving income for the next 20 years.
While $1.25 million isn't realistic for everyone, it's still a great idea to create a retirement goal based on the advice of your financial adviser and a budget. And one of the best ways to start working towards your goal is to build yourself a diversified investment portfolio that will earn steady returns over time.
If you're worried about the unpredictability of stocks, there are a number of alternative asset classes you can invest in that have a low correlation to the stock market, like real estate and fine art.
First National Realty Partners* is a private equity firm that allows individual investors to buy shares of institutional-quality, grocery-anchored commercial real estate properties, leased by national brands like Whole Foods and Walmart. Their team of experts will handle all the legwork for you, so you can just sit back and enjoy the quarterly income that your investments will generate.
If you're working with a smaller budget, Fundrise* will allow you to buy shares of all sorts of residential and industrial real estate properties with whatever amount you're comfortable investing.
And if you're an art lover, you can use a platform called Masterworks* to invest in shares of paintings by artists like Banksy at a fraction of the cost it would take to buy a single iconic piece.
It's easy to get overwhelmed when it comes to retirement planning, but remember that you don't have to make these big decisions on your own - consulting with a financial professional can provide important insight into the best steps to take next.
If you're not sure how to go about finding the right person to talk to, you can use a free service called Datalign* to get matched with a vetted financial adviser in just a few minutes.
Just answer some brief questions* about yourself and your retirement goals, and Datalign will find you an adviser who can help navigate your unique financial situation and make the right moves.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.