Retirement Gut Check: Are You On Track To Retire Within 5 Years?
By Mike Gibbons, RICP®
You are approaching the phase of life you’ve been working toward and preparing for, but are you ready? That’s right, we are talking about retirement. In order to make the transition smooth, now is the time to verify you have everything in place so you can enjoy your investments over the coming years. If you find you aren’t quite where you want to be with your finances, you still have a few years to make bold moves toward your dream retirement.
Do A Retirement Needs Assessment
Ultimately, you must ask yourself, “How much do I need to retire, and can I do that within 5 years?” The following 4 categories will help answer these questions.
Monthly Living Expenses During Retirement
Ideally, when you retire, your monthly living expenses will go down, but that is not always the case. Identify what your current monthly living expenses are and then add in experiences you’d like to have or purchases you’d like to make during retirement. All extra vacations and expenses for hobbies should be averaged out over the year and included in your monthly expenses. If you know your mortgage will be paid off by the time you retire, make sure to factor that in as well. The lower your expenses, the sooner you can be retired and/or the more flexibility you have in retirement.
Income During Retirement
At this point, you should be able to determine all the sources of income you will have access to upon retirement, which will include some or all of the following:
Pension income from a current or previous employer
Social Security benefits, which you can estimate by using this calculator from the Social Security Administration (1)
Any real estate properties you receive rental income from or plan to sell to increase your retirement distributions
Assets in the form of 401(k)s through work, IRAs, and HSAs if you have them
Expected Length Of Retirement
Another determining factor to address is how long you think you’ll be retired. Obviously, none of us know when we will be ending retirement, but you can estimate that number based on the current average life expectancy and your health. Although this is not the most lighthearted topic, it is necessary to consider as you want to be sure you don’t outlive your money.
For example, males in America born in 1955 have an average life expectancy of 76.61 years. (2) If you plan to retire at age 59½, the distributions you take will need to support your lifestyle for approximately 17 years, minimum.
How Taxes Will Be Applied During Retirement
Although you won’t have to pay Social Security and Medicare tax on your retirement income, you will still have to factor in state and federal tax for tax-deferred accounts. (3) These tax-deferred retirement accounts include:
Traditional IRAs
Rollover IRAs
SIMPLE IRAs
SEP IRAs
Most small-business accounts
Most 401(k) and 403(b) plans
Also keep in mind that the IRS will make you take a minimum required distribution (RMD) at the age of 72 on all of the accounts listed above. (4) Thankfully, any Roth accounts you possess were funded using after-tax dollars so none of the contributions or gains will be taxed when you choose to withdraw them.
Are You Ready To Retire?
This is an incredibly exciting time to be thinking about reaping the benefits of all your hard work over the years. Make sure you have all your boxes checked to ensure you can enjoy your retirement to the fullest.
We at Gibbons Financial Group work specifically with clients who are preparing to retire within 1 to 5 years and offer many resources to make sure they are financially prepared. If you think we might be a good fit for you, we’d love to help develop a holistic approach for your financial plan. Please call 224-419-5550 or email Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation. Under the RIA, Mike helps manage approximately $150 million in assets under management and works with clients that meet a minimum investment criterion.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2015-2019* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*As reported by Financial Planning Magazine, June 1996-2015, based on total revenue. Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management, among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2015 Five Star Wealth Managers.
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(1) https://www.ssa.gov/myaccount/retire-calc.html
(2) https://www.worldometers.info/demographics/life-expectancy/
(4) https://www.fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/overview