I am a 39 year old single father of a 16 year old son. I have $ 70,000 in cash savings, $ 530,000 invested in individual retirement accounts and owe $ 210,000 on a $ 500,000 home. I also owe about $ 20,000 on my car.
My home income is $ 7,200 a month, and my monthly expenses total about $ 4,000.
I do not have a current retirement plan with my job as they do not offer one. My ultimate dream is to be able to retire at the age of 50, but I will most likely not be happy to sit at home and want to work. I’m looking for the best option to save more up for retirement and need some advice.
Many thanks for your help
See: I retire on my 78th birthday, have more than $ 200,000 in savings, and share expenses with my 80-year-old boyfriend. Will I be okay?
I’m so glad that even if your employer does not offer a pension plan, you’re so determined to put money away for the future. It’s amazing, and a wonderful example for your son.
While it is unfortunate that you do not have access to an employer-sponsored pension scheme, you are far from alone. One option is to diversify the types of investment accounts you have.
You mention having individual retirement accounts, but you could consider opening a Roth IRA, which is funded with dollars after tax. There are income restrictions depending on your adjusted gross income and tax application status, so you will need to check that you are eligible, but based on your home salary, this should not be a problem. “I would start there,” said Chris Hardy, a certified financial planner at Paramount Investment Advisors.
Another option is a health savings account, which is typically available with high deductible health plans. These accounts have triple tax benefits because the money deposited, invested and distributed is tax-free if used for eligible health care expenses. The money is not to be used in the year it was paid in, which means you can let your account balance grow over the years and use it for eligible expenses when you retire.
Check out MarketWatch’s column “Retirement hacks” for useful advice for your own retirement savings journey
A taxable brokerage account is another potential option for your investments. Many pension accounts, including traditional IRAs, have a 10% fine for funds raised before the age of 59 (the rules are slightly different for Roth accounts – for example, the individual’s own contributions are always available to them – and there are exceptions). to this rule for traditional accounts and Roth accounts).
“Since you want to retire about 10 years before that age, it would be very helpful to build a taxable brokerage account so you have assets much easier to access without full tax and fine,” said Brian Behl, a certified financier. planning at Behl Fortueforvaltning. With taxable brokerage accounts, investors pay tax on dividends and interest received and then capital gains on the sale of any valued investments.
So there are a few options for the investment instruments you can use outside of an employer-sponsored account. Now think about how much money you actually need to spend on retirement.
“The core of any retirement strategy is to determine cash flow needs,” Hardy said. “He will have to decide what is needed to cover fixed expenses and then what would be needed for these discretionary items (ie travel, newer vehicles, ‘things’).” After estimating the estimates of these expenses, you can calculate the sources of your income – your savings, any pensions, social benefits and so on.
A rule of thumb is the 4% rule, which deducts 4% of your nest egg back every year in retirement to cover your living expenses, Hardy said. For example, a person with $ 1 million in retirement savings would raise $ 40,000 each year. Remember, rules of thumb are just general principles – they do not work for everyone, and there are several personal factors that can change how effective they are in a person’s pension calculations.
Having the mortgage paid off would be a great benefit to you, said Hank Fox, a certified financial planner. “It would eliminate a large debt and also increase his cash flow with the size of his current mortgage,” he said.
It is also possible to convert to a mortgage with a lower interest rate, but you should make a cost-benefit analysis of whether it really makes sense for your personal situation if and when you consider it.
You would also be in a slightly different situation if you were to retire at age 50 because you would have more than a decade left before you could claim your Social Security benefits and 15 years away from Medicare coverage. Before retiring at any early age, think carefully about how you pay for your medical expenses and what health insurance coverage you have during that gap, such as something offered on a state insurance exchange.
“Health insurance is one of the biggest concerns (and expenses) for all my clients who want to retire before age 65 when they are eligible for Medicare,” Behl said. Having money deposited in taxable brokerage accounts could also help in this arena – these distributions do not count as ordinary income, which keeps your income relatively low and thus potentially allows you to qualify for insurance exchange subsidies that would lower your premium costs.
Also see: I am a 55 year old single mother adopting a teenager. I have $ 550,000 in my retirement account, earn $ 295,000 a year, but would like to retire early. Can I?
Because you are a single father, I feel compelled to mention the need for property planning. This is never a fun aspect of planning, but it is so important to ensure your child’s safety in the event of an emergency.
“Something else to consider is where his son fits into the plan,” Fox said. Think about who would act as caretaker if an unfortunate event were to happen before he grows up, and how your assets are arranged so that they pass on to him if that is what you want. Review your beneficiary names, create a will, have a power of attorney and health power of attorney written on your behalf, and make sure everything is exactly as you want it.
The fact that you are the primary care provider for your son is also a reason to ensure that any medical, disability and life insurance coverage is adequate as it would help to provide lost income for childcare expenses in the event of a emergency, Fox said.
I will leave you with this. Retiring at an early age sounds like a dream to many people, but you have already touched on a very realistic result – getting bored without a job. Since you have already come to terms with the fact that you may not be happy leaving the workforce even though you are financially able to retire, start thinking about what this next chapter might look like for you. The concept of retirement has changed dramatically in recent years, and many Americans are now pursuing something called “financial independence,” which means they have the financial means to leave the workforce, but they take it as an opportunity to pursue a passion. or a hobby or a dream instead.
A part-time job, or even a lower paid one within an area you are really interested in could possibly also provide you with a health insurance.
“A lot of people are approaching retirement as the finish line to a productive life,” Hardy said. “We call it ‘retiring from’ something instead of ‘retiring to’ something. Most of the former group end up being very disappointed with what they thought retirement would look like, and some even experiencing a level of depression. ”
Take the time to weigh your options – would you like to do consulting work in your field? Going back to school to learn a new subject? Get a hobby? Try to volunteer for a cause that is close to your heart? Pick up and travel the world? Or juggling a few side concerts that bring you joy? What you decide will also play a role in how much money you need to save before you are ready to retire, and potentially even bring in more income into your retirement, but make a plan for your early retirement before you get started with it.
“Some customers also enjoy working more after gaining financial independence, knowing that they could ‘retire tomorrow’ if they wanted to,” Behl said. “It makes their work an optional choice rather than a necessity.”
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Do you have questions about your own pension savings? Email us at HelpMeRetire@marketwatch.com