Planning for retirement is one of the most important financial decisions you will make in your life. Fortunately, you can prepare for several retirement saving milestones to help you stay on track and build your retirement savings as scheduled. When you need help formulating a retirement savings plan that works for you and meets your financial needs, consider reaching out to an experienced estate planning lawyer at Von Rock Law. You can schedule a free, no-obligation consultation by calling our office at (866) 720-0195 or completing our online contact form.
What Are The Milestones for Retirement?
Retirement milestones are simply a guide to give individuals preparing for their futures an idea of how they can set themselves up for a robust retirement savings account. Here are some of the milestones people saving for retirement should prepare to meet:
- 1X annual salary by the age of 30
- 2X annual salary by the age of 35
- 3X annual salary by the time you are 40
- 6X annual salary by the time you reach age 50
- 7X annual salary by the time you reach 55
- 10X annual salary by age 67
How Retirement Savings Grow
Retirement savings are generated through compound interest and growth in 401(k), IRA, or other retirement savings account investments. As the Financial Industry Regulatory Authority explains, however, individuals who use a tax-deferred account, should remember that their investment earnings will be taxed once upon withdrawal when the account owner retires.
Expected Growth Patterns
Early career and mid-career investors should expect their retirement savings to increase slowly at first. Typically, accounts begin to increase faster over time, and those who have been investing for longer will have accumulated more money with which to generate interest. The key to successful retirement savings is to start early so that the funds have ample opportunity for growth.
Disappointing Growth Patterns
Such expectations for growth are established upon the premise that money paid into the fund remains in the fund, along with any interest generated. Moreover, if an individual starts withdrawing from their retirement savings accounts early, they could be penalized, in addition to losing some of the capital that is necessary for healthy savings growth. For this reason, it is essential to let the retirement savings account sit without making withdrawals to make the most out of the investment gains and savings upon retirement.
What Is The 25 Times Rule for Retirement?
According to the 25X rule, you estimate how much money you will need for retirement by estimating your annual retirement savings and multiplying that number by 25. Here is an example:
An individual has decided they can live comfortably on $100,000 per year. Totaling up their pension, their Social Security income, and other income, they can save approximately $25,000 per year. This means they will need to make up $75,000 through investments. Based on the 25X rule for retirement in this scenario, they should be prepared to save at least $1.5 million. However, the individual will also need to consider any capital gains taxes and penalties that might come with depleting their portfolio early as well.
What Should I Do 12 Months Before Retirement?
In the 12 months before official retirement, there are a few specific steps that soon-to-be retirees can take to set themselves up for success. These include:
Updating Your Retirement Budget
Start by updating your retirement budget. People approaching retirement need to review their upcoming expenses over the first year of their retirement and make sure they can afford to withdraw the amount of money that will be needed from existing retirement savings accounts. Review your credit card statements and monthly auto payments for overlooked expenditures. Calculating expected expenses and their commensurate budget carefully can enable the retiring person to take out enough to meet minimum distribution requirements, while also taking steps to avoid tax penalties. The last thing anyone wants to do is to have their money sitting in a checking account, which is slowly depleting in value due to inflation.
If one’s current budget is insufficient, it may be necessary to postpone a planned retirement to continue adding to the relevant funds. In some cases, it may also be possible to adjust the retirement budget before one begins taking out funds from the retirement savings accounts.
Adjusting Your Portfolio
Careful planners should also take steps to adjust their portfolios to plan for withdrawals. At this point, it is important to be careful about being too safe with one’s investments. This portfolio may need to sustain a retiree, and any dependents, financially for 20 to 25 years. Some questions individuals approaching retirement may wish to ask themselves include:
- Are my investments allocated, so I do not have to sell investments at a loss down the line?
- Which investments should I sell each year to maximize my withdrawal rates?
- Which retirement rates will ensure I do not run out of assets in retirement?
Preparing for Medicare
Expectant retirees who currently receive employer-provided health insurance will need to understand how Medicare works once they retire. This way, they can maintain sufficient health insurance coverage to protect themselves financially in case of a medical emergency or if their health worsens. An estate planning lawyer at Von Rock Law can work with you to answer questions about healthcare coverage after retirement and assist you in developing a plan to address your future needs.
Considering Refinance Options for Mortgage
People who have purchased a home but have not yet finished paying it off may wish to consider refinancing their mortgage as part of their preparation for retirement. Often it is easier to get an application for refinancing approved while one still has a source of external income.
Although paying off one’s mortgage before retirement is not necessary, individuals may wish to consider whether this is the best option for their retirement savings goals. If it becomes necessary to borrow against the property later, homeowners could pay a higher rate if the mortgage is already paid off.
Deciding When to Start Collecting Social Security Benefits
The Social Security Administration explains that once you have paid into the federal program, you will receive monthly benefits when you retire. The amount an individual receives will be based on how much they put into the program and how old that person is when they start collecting benefits. In the 12 months before retirement, it is essential to consider the age at which you wish to start collecting Social Security benefits.
What Are 5 Factors When Planning For Retirement?
There are five primary factors everyone should take into consideration when planning for retirement. These include:
- Figuring out whether you will need to support anyone other than yourself in retirement, such as a spouse or disabled adult children
- Establishing what you require to remain fulfilled and happy with your life
- Preparing for possibilities such as traveling, checking things off a bucket list, volunteering, and other items that may have waited for greater freedom in managing time
- Making sure you have the retirement savings to enjoy retirement as intended
- Remember that when and where you choose to retire is subjective
Call Our Experienced California Estate Planning Attorneys for Help Today
When you have big retirement savings plans, utilizing retirement saving milestones can help you to stay on track and ensure that you are achieving your financial goals. Get help devising a retirement saving plan that will meet your needs when you reach out to a knowledgeable estate planning attorney at Von Rock Law to discuss your long-term financial goals. You can reach us through our online contact form or by phone at (866) 720-0195 to schedule your confidential consultation as soon as today.
