Can you afford to retire at this exact moment? Here are 3 simple rules of thumb to figure out if you can

Shutterstock

Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.

We adhere to strict standards of editorial integrity to help you make decisions with confidence. Some or all links contained within this article are paid links.

America is about to experience a retirement tidal wave.

According to an article from Empower's publication The Currency, an estimated record 4.1 million Americans turned 65 this year.

However, some older Americans are hoping to retire even earlier than 65. But with the cost of living on the rise, they may be asking themselves whether that’s possible.

Must Read

Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and 3 simple steps to fix it ASAP

According to RetireGuide, the average annual retirement income for Americans 65 and up in 2023 was $83,085 when adjusted for inflation. Should you live for another 30 years, that means you’ll need $2,492,550.

While the average net worth for people over 65 is only around $1.6 million, Americans in their 60s spend about 18% more monthly on average than the general population, according to the Empower figures.

Before you panic, let’s look at three tips you can use to help guide your retirement decision.

The 4% rule

Many financial advisors recommend that retirees live by the rule of thumb of taking out 4% of your savings each year. This is the amount you can withdraw no matter what and hypothetically still have your retirement savings last another 30 years.

The main question here is whether this will offer you enough income, when combined with Social Security, pension, and all the rest. If you have $500,000, that would only be $20,000 per year. However, if you have $2 million, that would be $80,000.

That’s why, no matter what your 4% adds up to, you want to make sure you’re taking every measure to stretch it out. A Roth IRA account can help you in this regard — helping you build tax–free retirement savings.

Consulting a financial advisor specializing in retirement planning can help you open a new account or make the most of your current Roth IRA account.

With RothIRA.org, you can find a vetted financial advisor best suited to guide you. The process is simple: just provide some basic information about yourself, and RothIRA.org will match you with two to three FINRA/SEC registered financial advisors near you.

Story Continues

You can then set up a free initial consultation with your preferred advisor to further assess if it's the right fit for you — with no obligation to hire.

While most would-be retirees have IRAs for savings, you may not know that you can invest your retirement savings in commodities through your IRA, including gold.

Many investors are attracted by gold’s stability relative to the stock market. For example, while the market crashed in 2008, gold prices rose, cushioning the portfolios of investors who were savvy enough to diversify.

With the help of Thor Metals, you can open a gold IRA that seamlessly integrates into your investment strategy. Similar to an automated savings platform, Thor Metals makes it easy to schedule regular contributions and manage your gold investments efficiently.

To learn more, you can get a free information guide that includes details on how to get up to $20,000 in free metals on qualifying purchases.

Get some guidance

It’s easy to get overwhelmed when it comes to retirement planning, but remember that you don’t have to make these big decisions on your own — consulting with a financial professional can provide important insight into the best steps to take next in all aspects of your life and finances.

Finding a financial advisor that suits your specific needs and financial goals is simple with Vanguard.

Vanguard’s hybrid advisory system combines advice from professional advisers and automated portfolio management to make sure your investments are working to achieve your financial goals.

With a minimum portfolio size of $50,000, this service is best for clients who already have a nest egg built and would like to try to grow their wealth with a variety of different investments. All you have to do is set up a consultation with a Vanguard advisor, and they will help you set a tailored plan and stick to it.

Read more: Rich, young Americans are ditching stocks — here are the alternative assets they're banking on instead

You need $1 million (or more) in the bank

A recent survey by Northwestern Mutual found that Americans believe they need $1.25 million to retire comfortably today and continue receiving income for the next 20 years.

While $1.25 million isn’t realistic for everyone, it’s still a great idea to create a retirement goal based on the advice of your financial advisor and a budget.

Don’t overlook simple savings vehicles, especially as a way to keep growing your money after your retirement. One of the easiest ways to save is to take advantage of the higher rates on certificates of deposit.

Of course, your retirement years will entail a number of expenses, and essential purchases are inevitable. But you can make the most out of them by downloading the Acorns app.

With Acorns, when you spend money, the app automatically rounds up the total cost to the nearest dollar and invests the remainder in a diversified portfolio — so even when you have to spend, you're investing money at the same time.

For those looking to enhance their investing strategy, Acorns offers tiered memberships, including a gold tier that allows you to customize your portfolio by adding individual stocks, and a retirement account with a 3% IRA match.

If you sign up for Acorns today, you can receive a $20 bonus investment.

The rule of 55

This last rule of thumb deals with the tax implications of retiring early. While some potential retirees will have plenty of savings, it won’t be beneficial to retire early if you end up paying normal income tax. This is the case for those retiring after 55.

Usually, you’d face a 10% tax withdrawal penalty for making a withdrawal from a tax-qualified retirement plan like a 401(k). But for workers who have an employer-sponsored 401(k) plan, the IRS allows anyone over the age of 55 who decides to leave the workforce to start drawing penalty-free distributions from that plan.

What to read next

Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in ‘great wealth’. How to get in now Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it Commercial real estate has beaten the stock market for 25 years — but only the super-rich could buy in. Here's how even ordinary investors can become the landlord of Walmart, Whole Foods or Kroger The biggest myth in real estate investing? That you need big money. Here are 5 ways to grow your wealth — starting with just $10

Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. Subscribe now.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

View Comments