October is National Financial Planning Month and National Retirement Security Month. Recently, the Financial Planning Association (FPA) found that only 25% of people passed a “retirement income literacy quiz.” They write that this shows “a lack of retirement income planning knowledge that limits clients’ participation in their own retirement decision-making and lowers their satisfaction with the process.” Although retirement and financial planning are things we think about every day at Montgomery Financial Partners, we wanted to take this month to highlight some of the most important retirement questions that clients ask us.
When should I start saving for retirement?
This is the number one retirement question we get and the answer is simple: As early as possible! Worries about paying off student loans, saving for a house, or even planning for their children’s college savings might make it more challenging for younger workers to contribute to 401(k) accounts or IRAs. However, we can’t stress enough that the earlier you start saving for retirement, the more time that money has to grow. You should be trying to save 10-15% of your pre-tax income.
Have I saved enough for retirement?
Even if you started saving early and have put away money into your 401(k) or IRA accounts, you may still be wondering if you have saved enough for retirement or if you’ll outlive your money. Recently, CNBC reported that those closest to retirement age (55-65+) have saved an average of between $256,000 and $280,000 for retirement. Many folks will recognize that this isn’t enough to retire on. However, like most financial decisions, the amount that you need to retire depends on your own financial situation. Could you work part-time? Could you downsize? Do you want to travel or spend time with family? Answering these and other critical questions, and evaluating your savings, retirement funds, annuities, and Social Security income can help you figure out if you’ve saved enough for retirement.
When can I retire?
When do you want to retire? Thinking about when you want to stop working (long in advance of that time) can help you decide when you should retire. Some folks may want to keep working in some capacity, which can allow you to delay the age when you start taking Social Security benefits or begin withdrawing from your retirement accounts.
About ten years before you’d like to retire, you should think about what you have saved. After age 59 ½, you can begin withdrawing from your 401(k)s and IRAs without penalty, while after age 72 (or the age at which you retire if it is after age 72), you are required to take money out of those accounts. 67 is the full retirement age for anyone born after 1960, which means this is the age when you have full access to Social Security benefits. All of this requires skillful calculations about the money you have saved and your plans for retirement.
If you have any questions about navigating the complexities of retirement planning, please don’t hesitate to contact us. We commit to helping clients understand and achieve the unique financial goals they desire for themselves.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Cambridge and Montgomery Financial Partners are not affiliated.
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