Retirement
Written by: James McGlinchey
What is retirement?
The official definition of retirement is the time of life when one chooses to permanently leave the workforce behind.
The average age of retirement in the United States is 65 years-old.
Early retirement is 62 years-old (to collect social security.)
How to meet the financial goals of retirement?
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Social Security
a federal insurance program that provides benefits to retired people and those who are unemployed or disabled.
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Pension
a regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life.
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Savings
Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.
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Home Equity
Home equity is the value of a homeowner’s interest in their home. In other words, it is the real property’s current market value (less any liens that are attached to that property).
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Investments
An investment is an asset or item acquired with the goal of generating income or appreciation.
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Part-time Work
Part-time work or a part-time job is a flexible work arrangement which means working less than full-time hours. It usually means working fewer days per working week and employees are normally considered to be part-time if they commonly work fewer than 30 hours per week.
How much social security will you receive?
How much Social Security income you’ll receive depends on:
Your earnings over your lifetime
The age at which you'll begin receiving benefits
Whether you'll be eligible to receive a spouse’s benefit instead of your own
*For reference, the estimated average Social Security retirement benefit in 2021 is $1,543 a month.
Ways to invest in your retirement
401(k)
The employee who signs up for a 401(k) agrees to have a percentage of each paycheck paid directly into an investment account. The employer may match part or all of that contribution. The employee gets to choose among a number of investment options, usually mutual funds.
IRA
An IRA is similar to a 401(k) account. However, a 401(k) plan is an employee benefit obtained only through an employer. Any person with earned income can open an IRA retirement account to save long-term and enjoy the tax benefits they offer.
Traditional vs Roth
Both a 401(k) and an IRA have traditional and Roth options. An individual can can have either or both accounts but are subject to the overall contribution limit. Contributions to traditional accounts are with pre-tax dollars and are taxed on withdrawal and contributions to Roth accounts are done with after-tax dollars and can be withdrawn tax-free.
An important note on 401(k)’s employer match.
Average of 4.3% of a person’s pay
Most common match was 50 cents on the dollar employee’s contribute.
For every $1 you contribute to your company 401(k), your company will contribute 50 cents.
About 71% of companies → 50 cents for every dollar employees contribute up to 6% of employee’s salary.
Another 21% match employee contributions dollar for dollar up to 3% of employee’s salary.
**Employee’s salary has maximum limit of 290K.
What should be your retirement savings goal?
According to the Bureau of Labor Statistics:
Americans 65+: $51 000 (per annum)
Americans 65-74: $56 000 (per annum)
Americans 75+: $43 000 (per annum)
Rule of thumb: you may need close to 80% of your pre-retirement income