How Long Should You Work Before Retiring?
One of the most important objectives of retirement planning is to help investors determine how long they should work before they retire. The answer to that question depends on your personal financial circumstances, but as a general rule, you should work until you are certain that you can afford to retire. Your specific financial goals and your savings and investment strategies, such as opening IRA accounts, will determine whether you have enough income to lead the kind of life you want after you stop working.
Setting Financial Goals
As the average life span increases, working professionals find that the projected costs of retirement are increasing, as well. If you plan to retire at the age of 65, you may need to save 15 to 20 years' worth of income, depending on how healthy you are. With the costs of medical care and senior housing on the rise, you may need more income than you originally anticipated to lead a comfortable, secure life after you retire.
A knowledgeable retirement planner or investment advisor can help you set realistic, achievable goals for retirement. Qualified financial planners can accurately estimate your costs of living after you retire, based on your life expectancy and your personal objectives for retirement. If you intend to downsize your life and get by on a modest income, you'll need less money than a professional who hopes to travel, buy a second home or start a home business after they retire.
An online retirement calculator can be a useful tool for projecting how much money you'll need to save for retirement. Most working professionals need more money to cover their basic living expenses than their Social Security benefits will provide. Use a free calculator to find out whether you're on track with your current retirement goals, or whether you might need to work longer in order to lead a more comfortable lifestyle.
The sooner you begin to build a retirement income, the more likely you are to achieve your goals. By investing in one or more retirement accounts, such as a 401k through your employer and a Roth IRA, you may reduce the length of time that you need to work before you can afford to give up your current salary. Some investors choose to phase out of their career gradually to make the financial transition to retirement less abrupt.
Benefits of a Longer Career
There are a number of advantages to working past traditional retirement age of 65. The longer you work, the larger your Social Security benefits will be. By extending your career, you may continue to have access to employer sponsored health benefits and life insurance. If you participate in an employer sponsored retirement plan, like a 401k or a 403b, you can continue to benefit from matching contributions as well as tax deferred earnings on these funds.
Working in your senior years may help you lead a healthier, happier life as an elderly adult. The social and mental stimulation of working help many older adults stay active. If you currently have a stressful career, consider downsizing to a more pleasant, less demanding job as you grow older, or working independently as a consultant in your chosen field.
If you have a Roth IRA, you can continue to contribute to this tax free account for the rest of your life. As long as you continue to earn an income, you may make contributions to a Roth, provided that your annual income doesn't exceed maximum limits. The more money you contribute to a Roth IRA and other accounts while you're actively working, the sooner you'll be financially ready to retire.
Did you Know?
The Roth IRA is a retirement account that is funded with post-tax income. You pay taxes on your income this year as you would during any year and invest the funds in the Roth. Since taxes have been paid before investing you never pay income taxes on those funds in the future.
