Can I Afford to Retire?
July 2, 2009 by MJP
Filed under Retirement Planning
How many times will baby boomers ask themselves this question: Can I afford to retire? This is the financial part of the “am I ready to retire” question.
I am on vacation right now, the market dropped today, and now I find myself once again fighting off the dilemma of retirement affordability.
For many of us, the issue of affording retirement involves two different but related questions. The first question is whether we have sufficient assets in our nest egg to support the retirement lifestyle we have dreamed about.
The second question is, assuming that the answer to the first question is “no”, are we willing to downsize our retirement lifestyle to accommodate the income that our retirement assets can provide? In other words, can we compromise our needs and desires based on economic realities?
I have some educated guesswork to provide on this.
First, for those boomers who were planning on retiring and taking Social Security at age 62, I’m guessing that the majority of them had set a retirement date and will not change their minds. Given that taking Social Security at the earliest opportunity instead of age 70 is already a significant financial sacrifice, changes in the stock market probably are not radically affecting the “can I afford it” equation for many of those folks. They are determined to be finished with working at the earliest opportunity and Social Security is likely the controlling factor.
Others who had been counting on significant retirement income from their investments cannot automatically afford to maintain a fixed retirement date. Some of them have essentially given up on having a target retirement date, figuring that they can never afford to truly retire.
A third group is shifting strategies so that they develop different income streams in retirement. As the article points out, one of those strategies is insuring part of your retirement income using fixed annuities.
Personally, I have not finally resolved this question in my mind. I don’t know if I can postpone retirement indefinitely, waiting for things to turnaround such that my retirement income will match my lifestyle expectations. I suspect that there will be some compromising at some point.
What about you – is the “can I afford to retire” question affecting your decision-making?
Photo credit: Tony the Misfit
FREE UPDATES: If you enjoy what you read here, please consider subscribing to receive free updates automatically by RSS feed or by email. (I promise that your email address will not be shared or used for any other purpose.)
No related posts.
Hi,
I think I would like to retire, or at least cut back on working, when I am 62 and can (hopefully) get social security. That would be in about 5 years, and if I keep saving at the same rate ($20k or $30k per year, depending on interest rates, expenses, etc.), then I would have about $500k by then. I realize that is not a lot these days, but I don’t care about traveling or luxuries. I don’t mind living simply, as long as I have what I need. And there are several things I could do to earn $10k or $20 a year after I retire, in case I felt I needed more money.
So I think if I retired at 62 my income would be about $30k, which is more than I live on now. My income from work is about $70k, and my take home pay is $3600 per month, and I save about $1500 of that. I am used to not spending very much.
If I continued working until 66 or (god forbid!) 70 I would have more money, but I think I would rather have the extra time. I like to work and I like my job, but I hate not having enough time for things I want to do (including sleep!)
So — do you think it’s a bad idea for someone like me, who doesn’t have a ton of money, to retire at 62? I mean, even if I waited to 66 I still wouldn’t be rich, and still wouldn’t have enough to deal with every possible set back. For that you need millions, which I do not have time to save.