Dear Market Watcher,
I've heard over and over that I will need 80% of my current salary when I retire. If I have 20% saved, will I need 80% of what I bring home or 80% of my gross salary?
I'm also curious to know if I'll be able to retire at 60. I am 58 years old and married but my wife stays at home. I have one child who is in her second year at community college, and I plan to spend her final two years at university.
I saved $1.4 million and my house is paid for. I'm debt-free except for the condo, where I owe $65,000 but it's worth $250,000, and the $80,000 cabin where I owe $30,000 (both equal $1,800 a month in bills).
I bring home $4,400 a month. Will I be able to retire at age 60??
Related: I am 52 years old and will retire in 20 years. Should I invest in a Roth IRA or individual index funds like the Dow Jones and Nasdaq?
Dear reader,
The rule of thumb is that retirees should ideally replace 80% of their total salary, so if you have an annual salary of $50,000, you'd better replace $40,000 of that amount.
As for your second question, all of these numbers are important – but just as important is comparing them to your monthly spending either now or in retirement, and where that income will come from.
Let's go back to the replacement ratio. The guidelines are just that, so you should not rely on them completely in your financial planning. Retirement planning is exceptionally personal.
It could be 80%, but it could also be 90% or 75%. Consider all of your finances, including discretionary expenses you don't want to give up in retirement, as well as all of your retirement income.
You can choose to include Social Security in your calculations, part of it, or nothing at all if you want to be more conservative. Each of these calculations will give you an idea of a possible plan A, B, and C.
Estimate what you'll need in retirement for housing and health care, among other expenses, and use realistic numbers to account for inflation and rates of return.
Health care has a high price
Health care comes at a high price in retirement, and if your spouse is a stay-at-home mom and will retire before age 65, the age at which you are eligible for Medicare, how will you get your health insurance?
One option: a part-time job, ideally with an employer that offers health insurance, maintains cash flow, protects you and your dependents with coverage and allows you to transition into retirement life.
A qualified financial planner can help you do the math here, but calculators will give you a good idea of whether you're financially prepared. Here's what I wrote for another reader who asked about retirement calculators.
The amount of money she has raised, in addition to the real estate, is quite impressive. Most people would say that this alone means you're ready to retire now.
Not everyone has the ability to decide when to retire; Sometimes people are forced to do so through layoff or illness. If you're lucky enough to choose your own retirement date, crunch the numbers as best you can.
You don't want to be in a situation where you're spending your savings too quickly — or too slowly, for that matter — or where you're forgetting about the big expenses you'll have in 20 years.
However, based on what you say, you are on the right track.
If you turn 65 this year and would like to share your story, contact us at HelpMeRetire@marketwatch.com.
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