The average retirement age has risen since the mid-1980s. Given that younger generations are facing a student loan crisis and the questionable future of social security, there is no reason to believe that this trend will slow anytime soon.
Is retirement at 65 still a sensible goal for most people? It depends on your circumstances, your age, and your willingness to sacrifice now to reap the rewards when you reach retirement age. Here's what you need to know:
What affects your ability to retire?
There are several factors that can delay your retirement date. These include:
Chris Chen, CFP at Insight Financial Strategists, said the divorce was a huge factor that could decimate retirement portfolios – even for investors who believed they were on the right track.
"There is an epidemic of gray divorce in this country," he said.
When you get divorced, your bills suddenly go up. If you divorce violently, you can owe lawyers thousands or tens of thousands of dollars. Divorce could be even more costly when children are involved.
Not enough income
Consumers who work in low-income professions or live in expensive cities may struggle to save for retirement. Yes, saving $ 100 a month is better than nothing, but retiring at 65 probably won't be enough.
Negotiating your salary regularly and starting a sideline can help bridge the gap between what you can save now and what you should be saving each month. Staying on a budget and cutting your monthly expenses also helps.
Every year, millions of people unexpectedly retire for health reasons. If you retire before the age of 65 due to health problems and are not eligible for disability, you will have to pay for health insurance out of pocket.
If you already have chronic health issues, you may want to save more for retirement in case you are forced to retire early.
According to Silvia Manent, CFP® from Manent Capital, many parents prefer saving for their child's college education rather than saving for their own retirement.
"The important thing for parents to realize is that you can't get a loan for retirement, but you can get a loan for education," she said. "This is the first thing I always tell my customers."
It may be selfish to save for your retirement, especially when our society is constantly reminding us that good parents put their children before themselves. That may be true, but sabotaging your own financial future will not help your children – especially if they have to support you financially in old age.
Start too late
One of the biggest mistakes is waiting too long to save up for retirement. If you start out at age 25, you need to save $ 400 per month to reach a nest egg of $ 801,680.19.
If you wait until 35, you'll have to save $ 794 – or almost double – to get the same amount. Those who wait until the age of 40 have to keep a whopping $ 1,151 a month. This reflects the power of compound interest – it's easier to save for retirement when you start young and save consistently over time.
It's nearly impossible for the average person to save that much each month, which means someone in this position will likely be forced to work well past the average retirement age.
How to retire at 65
While there are more than a few barriers to retiring at 65, there are a few key strategies that can help you achieve that goal. Here are the most important.
No matter how old you are, start contributing to a retirement account now. The sooner you start, the more likely it is that you will achieve your goal.
Try to increase your contributions by 1% every year. If you get a raise, you should put half of it away for your retirement. When you get a windfall like a tax refund or a bonus add most or part of it to your retirement account. As a rule of thumb, you need to save between 10% and 15% of your salary for retirement.
If you have access to an employer-sponsored retirement account, check that the contributions match. This is free money that should always be exploited.
A common mistake many investors make is saving money for retirement every month but not getting the most out of their retirement account.
“We've seen people assume their 401 (k) account or IRA is appropriate for their time horizon and risk tolerance, but sometimes people just sit on a pile of cash that never had a chance to pay taxes to raise. postponed, ”said financial planner Elliot J. Pepper, CFP® at Northbrook Financial.
If you're having trouble getting started, reach out to a paid financial planner. They can advise which investments are appropriate and how much to save each month.
One key to retiring at 65 is to invest consistently and not react emotionally to market fluctuations. Regardless of what happens economically, the most successful investors are those who don't withdraw money from their retirement accounts when the market collapses.
You are probably better off choosing index funds than individual stocks. Yes, it is tempting to try and pick the next Tesla or Apple stock, but you will almost certainly have more success investing with an index fund.
Health care plan
Many investors mistakenly assume that their health care costs are negligible in retirement. But Medicare isn't free, and the average 65-year-old is still paying hundreds of dollars a month in premiums. This does not include expenses for prescriptions, laboratory work and hearing aids.
You can plan for these expenses in advance by saving in a health savings account (HSA). Money in an HSA is tax deductible and tax free when used for qualified medical expenses.
It's still worth investing in a retirement account, even if retiring at 65 is a pipe dream. You still want to retire at some point, even if it's closer to 75 than 65.
If you can't stop working at 65, you may still be able to switch to part-time work or freelance counseling. Alternatively, you can potentially cut your wages and work full-time in a less stressful job.
Zina Kumok (108 posts)
Zina Kumok is a freelance writer who specializes in personal finance. As a former reporter, she has covered murder trials, the Final Four, and everything in between. It has been featured in Lifehacker, DailyWorth, and Time. Read how she repaid $ 28,000 in student loans at Conscious Coins in three years.