Dear MarketWatch,
I have heard several times that when I retire I will need 80% of my current salary. If I put 20% aside, will I need 80% of what I take home or 80% of my gross salary?
I’m also curious if I will be able to retire at age 60. I am 58 years old and married but my wife stays at home. I have a daughter in her second year of community college, with plans to attend her final two years of college.
I have $1.4 million saved and my house is paid off. I have no debt, except for a condo, where I owe $65,000 but it’s worth $250,000, and an $80,000 cabin where I owe $30,000 (both equal $1,800 a month in bills).
I take home $4,400 a month. Will I be able to retire at 60??
Related: I am 52 years old and will retire in 20 years. Should I invest in a Roth IRA or individual index funds like Dow and Nasdaq?
Dear reader,
The typical rule of thumb is that retirees should ideally replace 80% of their gross pay, so if you have an annual salary of $50,000, you would ideally want to replace $40,000 of that.
As for your second question, all of these numbers are important, but as important as they are to your monthly spending both now and in retirement, and where that income comes from.
Let’s go back to the substitution relationship. The guidelines are just that, so you should never rely on them completely for your financial planning. Retirement planning is exceptionally personal.
It could be 80%, but it could also be 90% or 75%. Take into account all of your finances, including those discretionary expenses that you are not ready to give up in retirement, as well as all of your retirement income.
You can choose to include Social Security in your calculations, or some of it, or none at all, if you want to be more conservative. Each of these calculations will give you an idea of a possible plan A, B and C.
Estimate what you’ll need in retirement for housing and healthcare, among other expenses, and use realistic figures to account for inflation and rates of return.
Health care comes at a huge price
Health care comes at a huge price in retirement, and if your wife is a stay-at-home mom and you retire before age 65, the age you’re eligible for Medicare, how will you get your health insurance?
One option: Part-time work, ideally with an employer that offers health insurance, keeps your cash flow going, protects you and your dependents with coverage, and allows you to transition to life in retirement .
A qualified financial planner can help you do the math here, but calculators will give you a good idea of your financial preparedness. Here’s what I wrote to another reader who asked about retirement calculators.
The amount of money you have accumulated, as well as real estate, is absolutely wonderful. Most people would say that alone means you’re ready to retire right now.
Not everyone has the ability to decide when to retire; sometimes people are forced to do this due to a layoff or illness. If you’re lucky enough to choose your retirement date, run all the numbers you can.
You don’t want to find yourself in a situation where you’re spending your savings too quickly – or too slowly, for that matter – or where you forget about big expenses you’ll have in 20 years.
From what you say though you are on the right track.
If you turn 65 this year and would like to share your story, please contact us at HelpMeRetire@marketwatch.com.
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