$1 million almost don't go in retirement as it once did. In fact, a recent survey found that investors believe they will need at least $3 million To retire comfortably. But retiring with $1 million is still possible, even at age 55, if you're smart about it. This will require some careful planning since you'll have to wait 10 years for Medicare, but it can be done. If you're not sure how to get started, consider working with a financial advisor,
additional cost of early retirement
A million dollars is a great nest egg, but when planning for retirement, people often rely on receiving social Security Checks and Medicare. If you retire at age 55, you'll have several years before you become eligible for either. Medicare doesn't start until you're 65 And you won't be eligible for full Social Security payments until you turn 66 or 67, depending on the year you were born.
You can choose to start collecting your Social Security benefits when you turn 62, but you can't get too early without taking Medicare seriously disability, That means you'll have to cover insurance and medical expenses out of your own pocket for the first seven years of your retirement, which could eat away at your $1 million nest egg.
Another idea is that a long retirement It just costs more. When you retire at 55 instead of waiting until 66, your savings will need to cover 11 additional years of expenses and 11 fewer years of income. Despite these caveats, smart financial planning should enable you to retire at age 55 with $1 million in savings.
How to plan your retirement
To plan for your retirement, you must first estimate your lifetime. If you retire at age 55 and live to an average age of 79, your savings will need to last you 24 years. You can use the 4% rule to see what this would look like. This rule says that if you spend no more than 4% of your retirement savings each year, adjusted for inflation, your savings should last 30 years.
Now, 4% of $1 million is $40,000. If you own your home and live in a low-cost-living area, this may be enough. you can also use The calculator Click here to see what your Social Security payment will look like. Between your savings and Social Security, you can live quite comfortably — but remember, you'll have at least seven years before you can start collecting Social Security checks. If that doesn't sound like enough for you to live on, you may need to make some major lifestyle changes in order to retire at age 55.
That said, the 4% rule is a simplified rule of thumb. Many experts note that this is not the best way to plan for your retirement, and should only be a starting point. You can take a more in-depth look at your unique financial situation with a retirement calculator or by talking to a financial advisor,
You should also plan for taxes. According to financial industry regulatory authority (FINRA), here are five main tax areas that can affect retirees:
Social Security Tax: Whether you pay taxes on your Social Security payments depends on your overall retirement income and whether you file joint or separate tax returns with your spouse. Use This worksheet from the IRS To determine whether your Social Security benefits will be taxed.
Pension Tax: You will have to pay income tax on your pension fund in the year you withdraw the money.
Retirement Account Taxes: You have to pay income tax on withdrawal from A Traditional IRA or 401(k) In the year you make the withdrawal. On the other hand, Roth IRA and Roth 401(k)s Funded with after-tax dollars, which means you don't owe any taxes on the money you withdraw.
Estate Planning Taxes: You should start thinking about what money or other assets you want to give to your loved ones. Sometimes making a Will before your death can be beneficial to all parties, including tax benefits for you.
other taxable accounts: The Tax The bill will get more complicated if you have other taxable accounts with investments that are generated. capital gains or interest income.
How to improve your retirement prospects
Retiring with $1 million at age 55 is within the realm of possibility, but you'll need to make a good living Financial Planning, You can set yourself up for success with these tips:
Reduce your fixed expenses: If you're worried about how long $1 million will last, you can cut your costs significantly by downsizing your home, moving to an area with a lower cost of living, or paying off debt before you retire.
Diversify your investments: Having a diversified investment portfolio is a great way to minimize risk and maximize returns.
Get expert advice: If you want to retire early, a financial advisor will be essential to create an investment strategy.
It's certainly doable if you hope to retire early with $1 million, but you need to have a good sense of what your expenses and income will look like in retirement. Plan ahead and call on an expert when needed so you can enjoy your retirement without significant financial surprises.
Retirement Planning Tips
Watching expenses can be just as important when you're planning your finances for retirement. T. Rowe Price says to start by assuming you'll be spending 75% of your pre-retirement income. However, a financial advisor can help determine an accurate spending expectation for retirement. Finding a financial advisor doesn't have to be difficult. SmartAsset's Free Tool Matches you with three vetted financial advisors serving your area, and you can interview your advisor matches for free to decide which is right for you. If you are ready to find an advisor who can help you achieve your financial goals, get started now,
If you're not sure how much you need to save for your golden years, consider using SmartAsset for free retirement calculator, Our tool will give you an estimate based on when you plan to retire, how much you're currently saving, your annual retirement expenses and more.
Want to relocate so you can retire early? View a recent study by SmartAsset best cities for early retirement
Photo credits: © iStock.com/kate_sept2004, © iStock.com/JohnnyGreig, © iStock.com/g-stockstudio
Post Can I Retire At 55 With $1 Million? first appeared SmartAsset Blog,