One of the most common and frustrating questions clients ask is, “When can I retire?” And, of course, my most common and frustrating answer is, “That depends”. Everyone’s situation is different, and there are so many variables. The answer cannot possibly be the same for everyone. Two critical components are:
Income Sources: Typical sources include social security, pensions, passive income, part-time work, investment income.
The amount you will collect from lifetime income sources is only the basis of your broader retirement planning. Knowing how much you will collect from SSI and/or pensions will give you an idea of how much income you need to make up with passive income, part-time work, and/or investments.
Your monthly social security benefit is a fixed amount determined by when you start collecting benefits. If you start early at 62, you will collect just 70% of the full benefit (for those born after 1960) or about $952 a month on the current average $1,360 monthly benefit. You could potentially collect 124% of your full social security benefit if you wait to retire at age 70. That could make your benefit around $1,686 a month.
A common misconception about SSI benefits is that your benefits are cut if you make over a certain amount. If you wait to your full retirement age, then you can make as much as you want and still get full benefits.
Your major pre-retirement financial planning will begin at age 50 when you are eligible to increase contributions to retirement plans along with some other benefits.
Estimate your retirement spending needs and how much you can expect from SSI or pension benefits. Start filling the gap in estimated income by increasing contributions to retirement plans like a 401k or IRA. Check you Benefit Estimate Statement while you are working.
Social Security Administration 1-800-772-1213 or socialsecurity.gov. Social Security Earnings and Benefit Estimate Statement,ssa.gov/mystatement
This does not mean that retirement planning doesn’t start until 50 years old. Your retirement savings contributions should start as early as possible to give you the benefit of compound interest and decades of investing.
Medical expenses and resources: Medicare, employer-provided retiree benefits, private health insurance, Medicaid, and long term care, will be your options for covering healthcare expenses. Healthcare in America has been a contentious issue over the last several years but what isn’t up for argument is the fact that you must have healthcare insurance as you get older. Keeping affordable health insurance is one of most often cited reasons people work beyond their retirement age. Health insurance can be prohibitively expensive for those not covered by an employer plan.
Medicare covers people age 65 and over as well as those under 65 with specific disabilities and anyone with permanent kidney failure. Medicare doesn’t cover everything though and many beneficiaries purchase supplemental (Medigap) policies to pay expenses not covered.
You must enroll in Medicare within three months of your 65th birthday and then talk to an insurer about additional coverage on their plans.
You generally pay the Part B premium to Medicare and then an additional monthly premium to the insurance company. Total out-of-pocket premiums vary but range from $150 to $200 per month and can cap your total out-of-pocket expenses at a few thousand a year.
Apply for Medicare within three months of your 65th birthday and contact your employer’s human resources office to understand how your health insurance or COBRA benefits can coordinate with Medicare.
Beware of health insurance fraud as scammers are on the watch for people entering their Medicare signup period. Never give out your social security or Medicare number over the phone.
Determining your income gap requires calculating what your income needs will be after you stop working. Everything that is not covered by your lifetime income sources (social security and/or pension) will need to be supplemented with investment income, part-time work, or passive income.
Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Old National Bank and Old National Investments are not registered broker/dealers and are not affiliated with LPL Financial. Old National Bank, Old National Investments, and LPL Financial are separate entities.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
*Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Old National Bank and Old National Investments are not registered broker/dealers and are not affiliated with LPL Financial. Old National Bank, Old National Investments, and LPL Financial are separate entities.
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Sandy Derby, CFP®, ChFC LPL Financial Advisor, VP Southwest Michigan Region 5003 Century Ave Kalamazoo, MI 49006 269-459-0474 oldnational.investments TM