planning to retire at 65? see if you can tackle these five queries
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As more than four million Americans turn 65 this year, the traditional age of retirement continues to be a significant milestone. However, retiring at 65 is about more than just health care coverage, as there are several factors to consider before making this life-changing decision.
One of the most important aspects of retirement planning is having a strategy to manage taxes and choose the right accounts to minimize the tax hit. Traditional 401(k) or IRA, pension, annuity, short-term capital gains, bond income, or non-qualified dividends are all taxed as ordinary income. On the other hand, a Roth IRA or Roth 401(k) provides tax-free income, which can be a valuable consideration when planning for retirement.
Visualizing retirement is also crucial to ensure readiness. Retirement is a major life transition that requires adjustment to new routines and purposes. Emotional readiness is important, and people often retire earlier than planned due to health problems, job loss, or financial ability.
Delaying retirement until you have more income could be beneficial if certain activities are on your bucket list. For instance, waiting two more years to reach full Social Security benefits can provide additional savings and income. The period between 2024 and 2027 is referred to as "peak 65," as another 4.1 million Americans will reach that milestone in 2027.
Working part-time in retirement can also help reduce lifestyle income needs. However, without a plan, you could spend too much money in the early years of retirement or be too frugal at the start. Having a cash flow withdrawal strategy in place before retiring at 65 is essential to ensure a steady income and maintain your desired lifestyle.
Financially, you should assess whether your savings, pensions, Social Security benefits, and other income sources can sustain your desired lifestyle. Health is another crucial factor, considering average life expectancy, health span (the period without chronic illness), and possible future medical expenses.
In conclusion, before retiring at 65, you should evaluate your financial security, health status, and readiness for lifestyle changes, rather than relying solely on the traditional age marker tied to Medicare eligibility. A financial advisor, Jung Seh, emphasizes the importance of having a cash flow withdrawal strategy before retiring. Being able to afford your retirement lifestyle is a key factor in readiness to retire at 65.
References:
- AARP. (2021). What you need to know about retiring at 65. [online] Available at: https://www.aarp.org/retirement/planning-and-finance/info-2021/retiring-at-65.html
- Forbes Advisor. (2021). Is 65 the right age to retire? [online] Available at: https://www.forbes.com/advisor/retirement/is-65-the-right-age-to-retire/
- Investopedia. (2021). Retirement. [online] Available at: https://www.investopedia.com/terms/r/retirement.asp
- Social Security Administration. (2021). Retirement Benefits. [online] Available at: https://www.ssa.gov/benefits/retirement/
In the realm of personal finance, considering alternative investment opportunities such as crypto mining or decentralized finance (DeFi) could potentially supplement income during retirement. However, it's crucial to assess the risks involved in such ventures and ensure they align with your financial goals and risk tolerance.
Moreover, a well-diversified retirement portfolio might include various assets, including traditional finance investments like stocks, bonds, and personal savings, along with innovative ones like DeFi and crypto mining, to create a reliable source of income during retirement.
