The sun is out, the days are longer, the flowers have bloomed and the sound of children playing can be heard. As we sit longingly looking out of our work-day windows, we all secretly wish we could join them. And those who are nearing retirement are getting the "itch" -- the one to call it a day, hang up the hat and put the "gone fishin'" sign on the door. Cash in the retirement and start living life, that's the retirement dream.
I always feel a little saddened when I see an elderly person working. Though I admit, there may be several reasons for doing so (they enjoy it, like the companionship or like the extra spending money), being in my field, I always have to wonder if they are doing it out of necessity. So that brings me to the question about retirement: When do we need to?
What I often see is that around the age of 60 (and getting younger) people get the "itch" to begin the retirement process. Friends and family members start retiring and the "itch" starts to spread. However, what many couples do not take into full account is the actual result this will have on their finances. Many do not consider the impact the reduced income will have on their lifestyle and expenses.
For example, a couple making a combined $77,000 a year ($58,000 after approximate taxes) at age 62 and retiring by taking early retirement Social Security benefits, will receive about $19,700 per year in Social Security payments. This couple will need an additional $38,300 in after-tax or untaxed income to make up the difference if they intend to maintain their current lifestyle. Thus goal-setting becomes a large part of retirement planning, because most people wish to do more in their retirement years than they were able to do in their working years (i.e., travel, buy a boat or camper, etc.).
So, let's say this couple works three more years until age 65 (based on today's rates). With future value considered, this will increase the couple's estimated Social Security benefits by $7,800 a year, will give them three additional years to contribute to a Roth IRA, which would be approximately $36,000 just in contributions and allow three more years to invest in a company retirement plan. If the couple each contributed 3 percent of their pre-tax income to a company 401k and received a dollar-for-dollar match on that contribution, that would be an additional $14,280 in the retirement plan (with no gain or loss).
I also hear many people say that they will retire officially and just work part-time or just find a small job "to have something to do." However, most of these jobs will likely not pay enough to make up the difference in income, allow for retirement contributions or have a retirement plan available. So why do this? The only feasible reasoning I can see is when the job you are leaving has an early retirement or "buyout" situation. Then all aspects still need to be carefully and thoroughly evaluated with your financial adviser.
So take a great vacation and put some pictures in your office, but take into careful consideration the overall impact retirement will have on your family before you cast your reel.
Jerri L. Compton is a financial adviser for Creative Financial Solutions, LLC, of Ironton. She can be reached by e-mailing compton.jerri@gmail.com.
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