Retiring at 58 might seem like a pipe dream, but it’s achievable with careful planning. This guide will help you determine how much money you need to retire comfortably at 58 and create a plan to reach your goal.
Factors to Consider
1. Retirement Expenses:
- Estimate your annual retirement expenses based on your current lifestyle and where you live. Consider housing costs, healthcare, travel, and other expenses.
- Don’t just ballpark this figure. Instead, review your bank and credit card statements to get a realistic picture of your spending habits.
- Adjust your estimated expenses based on your expectations for the future. For example, if you plan to travel extensively, you’ll need more money than someone who plans to stay home.
- Remember to account for inflation, which will increase your expenses over time.
2. Healthcare Costs:
- Healthcare is a significant expense, especially during the seven years before you become eligible for Medicare.
- Research the cost of private health insurance after retirement and include it in your budget.
- Factor in additional healthcare costs once you enroll in Medicare, as it doesn’t cover all medical expenses.
3. Retirement Income:
- Assuming a 100-year life expectancy, you’ll need 42 years’ worth of income to retire at 58.
- Calculate your required annual retirement income by multiplying your estimated annual expenses by the number of years you expect to live.
- Subtract your anticipated Social Security benefits from your required annual income to determine how much you need to save.
- Use a Social Security life expectancy calculator to estimate your benefits.
4. Longevity:
- Plan for a long life, as medical advancements are increasing life expectancy.
- Consider living to 100 or more when planning your retirement savings.
- Underestimating your lifespan can lead to financial hardship in your later years.
5. Retirement Account Withdrawals:
- You can’t withdraw money penalty-free from a 401(k) before age 59.5, except under the Rule of 55, which allows withdrawals if you leave your job during or after the year you turn 55.
- The Rule of 55 doesn’t apply to IRAs and Roth IRAs. Withdrawals before age 59.5 are subject to additional taxes and penalties.
- You can begin withdrawing money from your IRA within 18 months of retirement.
6. Asset Allocation:
- Invest your retirement savings in a mix of stocks and bonds to balance risk and return.
- Consider allocating a larger portion of your portfolio to stocks for higher growth potential, especially if you have a longer life expectancy.
7. Comprehensive Retirement Plan:
- Create a comprehensive retirement plan that includes all your income sources, expenses, and savings goals.
- Adjust your plan as needed based on changes in inflation, investment returns, and healthcare costs.
- Consider working with a financial advisor to develop and manage your retirement plan.
Retiring at 58 requires careful planning and consideration of various factors. By following the steps outlined in this guide, you can create a realistic retirement plan and increase your chances of achieving your financial goals.
Frequently Asked Questions
1. How much do I need to save to retire at 58?
The amount you need to save depends on your individual circumstances, including your retirement expenses, income sources, and life expectancy. Use the steps outlined in the guide to estimate your specific needs.
2. How can I save for retirement at 58?
Start saving as early as possible, even if it’s just a small amount. Contribute to your employer-sponsored retirement plan, such as a 401(k), and consider opening an IRA.
3. Should I work with a financial advisor?
Working with a financial advisor can be helpful, especially if you’re unsure how to create a retirement plan or manage your investments.
4. What are some tips for retiring early?
Downsize your lifestyle, pay off debt, and consider working part-time or consulting after retirement to supplement your income.
5. What are some common mistakes people make when planning for early retirement?
Underestimating expenses, overestimating investment returns, and not planning for healthcare costs are common mistakes.
Additional Resources
- AARP Retirement Calculator: https://www.aarp.org/retirement/planning-for-retirement/retirement-calculator/
- SmartAsset Retirement Calculator: https://smartasset.com/retirement/retirement-calculator
- Social Security Life Expectancy Calculator: https://www.ssa.gov/oact/population/longevity.html
Retiring at 58 is possible with careful planning and execution. By following the steps outlined in this guide, you can increase your chances of achieving your retirement goals and enjoying a comfortable and fulfilling retirement.
Factor No. 2: How much will you earn on your savings?
Nobody can predict the returns on bank certificates of deposit, stocks, or bonds for the next 20 years or so. To get some ideas, we can examine long-term historical returns.
According to Morningstar Direct, stocks have earned 10. 13 percent annually on average since 1927—a time span that encompasses both the Great Recession and the Great Depression. Bonds have earned an average 4. 94 percent a year over the same time. Treasury bills, which serve as a stand-in for bank deposits, have increased in value by three 25 percent a year. Over that time, annual inflation has averaged roughly 3%, according to Morningstar.
The majority of people do not, however, place all of their retirement funds in one particular kind of investment. Although they may invest a portion of their portfolio in stocks to increase their capital, they also frequently have bonds to protect against the inevitable declines in stocks. A portfolio consisting of 60% equities and 40% bonds has, on average, returned 8%, according to Vanguard. 8 percent a year since 1926.
Financial advisers often recommend caution when estimating portfolio returns. Gary Schatsky, a New York financial planner, aims at 2. 5 percent returns after inflation, which would be about 5. 5 percent today. That may sound lowly, he says, but it’s probably better to aim too low and err than to aim too high and make a mistake.
Factor No. 1: How much will you spend?
Check your retirement savings with the AARP calculator.
Although that rule necessitates a fairly flexible thumb, the general consensus is that you’ll need roughly 80% of your pre-retirement income to maintain your lifestyle in retirement.
You must account for withdrawals from retirement accounts as well as any additional income you anticipate receiving, such as Social Security, a pension, or an annuity, when figuring out how to pay that 80 percent. You will want those income streams to total at least $40,000 if, for example, your pre-retirement income is $50,000 annually.
Let’s say you and your spouse have reviewed your Social Security statements and find that you are expected to receive a total of $24,000 per year, or $2,000 per month, in benefits. You’ll need about $16,000 a year from other sources. Remember that the amount of taxes you pay will be deducted from any withdrawals you make from a tax-deferred savings account, like a traditional IRA or 401(k) plan.
Join today and save 25% off the standard annual rate. Gain immediate access to deals, events, services, and the knowledge you require to improve all facets of your life.
Next, think about the items you might want to purchase. Travel is frequently the largest expense during the first three years of retirement, according to Lubbock, Texas-based financial planner Mark Bass. The goal of newly retired individuals is to go on a four-week trip, which may require paying for business class airfare (roughly $20,000). ”.
According to Bass, as long as you factor it into your budget and the trip doesn’t wind up in the poorhouse, there won’t be any issues. Therefore, you should create a retirement spending plan in addition to your income estimate.
Medical care is another expense to factor in. Medicare Part B, which pays for the majority of medical services, has a standard monthly premium of $174 as of 2024. 70 or higher, depending on your income. In addition, there is an annual $240 deductible in addition to 20 percent of the Medicare-approved amount for the majority of medical services. According to estimates from Fidelity Investments, an average couple will require $315,000 after taxes to cover medical costs throughout their retirement, excluding long-term care.
Lastly, consider how much, if anything, you would like to leave to charity or your kids. A plan that just aims to have your money last as long as you do is much more sensible than someone who wants to leave their entire savings to their children or the church of their choice.