I’m a 39 year old single dad with $ 600,000 in savings. I want to retire at 50, but I don’t know how. What should I do?
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 house worth $ 500,000. I also owe around $ 20,000 on my car.
My net income is $ 7,200 per month and my monthly expenses total approximately $ 4,000.
I don’t have a current retirement plan with my job because they don’t offer one. My ultimate dream is to be able to retire at 50, but I probably won’t be happy just sitting at home and wanting to work. I’m looking for the best option to save more for my retirement and need some advice.
thanks a lot for your help
To see: I retire on my 78th birthday, have over $ 200,000 in savings, and share the expenses with my 80-year-old boyfriend. Will I be okay?
I am so happy that, despite the fact that your employer does not offer a pension plan, you are so determined to put money aside for the future. This is great, and a wonderful example for your son.
While it’s unfortunate that you don’t have access to a workplace pension plan, 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 might consider opening a Roth IRA, which is funded with after-tax dollars. There are income restrictions based on your adjusted gross income and tax reporting status, so you will need to verify that you are eligible, but based on your take-home pay this shouldn’t be a problem. “I’ll start there,” said Chris Hardy, certified financial planner at Paramount Investment Advisors.
Another option is a health savings account, which is generally available with high deductible health plans. These accounts have triple tax benefits, as the money paid, invested and distributed is tax free if used for qualifying health care expenses. The money doesn’t need to be used in the year it was contributed, which means you could let the account balance grow over the years and use it for eligible retirement expenses.
Read the MarketWatch column “Retirement Hacks” for practical advice for your own retirement savings journey
Another potential option for your investments is a taxable brokerage account. Many retirement accounts, including traditional IRAs, have a 10% penalty for funds withdrawn before age 59.5 (the rules are a bit different for Roth accounts – for example, the individual are always available to them – and there are exceptions to this rule for traditional accounts and Roth accounts as well).
“As you want to retire about 10 years before that age, setting up a taxable brokerage account would be very helpful so that you have assets that are much easier to access with no full taxes and penalties owed,” said Brian Behl. , Certified Financial Planner at Behl. Wealth management. With taxable brokerage accounts, investors pay taxes on dividends and interest received, and then capital gains on the sale of any valued investment.
So these are some possibilities for investment vehicles that you could use outside of an employer sponsored account. Now think about how much money you will actually need for your retirement.
“At the heart of any retirement strategy is determining cash flow requirements,” said Hardy. “He’ll have to figure out what is needed to cover fixed expenses, and then what would be needed for those discretionary items (ie travel, newer vehicles, ‘stuff’). After you have assessed the estimates of these expenses, you can calculate the sources of your income – your savings, possible pensions, social security benefits, and so on.
A rule of thumb is the 4% rule, which involves withdrawing 4% of your nest egg each year in retirement to cover your living expenses, Hardy said. For example, someone with $ 1 million in retirement savings would withdraw $ 40,000 each year. Keep in mind that rules of thumb are just general principles – they don’t work for everyone, and there are many personal factors that could affect their effectiveness in a person’s retirement calculations.
Having the mortgage paid off would be a huge benefit to you, said Hank Fox, a certified financial planner. “It would eliminate significant debt and also increase its cash flow by the amount of its current mortgage payment,” he said.
There is also the option of refinancing a mortgage with a lower interest rate, but you should do a cost benefit analysis to determine if this really makes sense for your personal situation if and when you consider it.
You’ll also be in a slightly different situation if you were to retire at age 50, as you would have over a decade before you could claim your Social Security benefits and 15 years of Medicare coverage. Before you retire at an early age, think carefully about how you will pay for your medical bills and what health insurance coverage you will have during this time, such as an offer offered on a state insurance exchange. .
“Health insurance is one of the biggest concerns (and expenses) for all of my clients who want to retire before age 65 when they are eligible for Medicare,” Behl said. Having money set aside in taxable brokerage accounts could also help in this area – these distributions do not count as ordinary income, which keeps your income relatively low and therefore potentially allows you to benefit from grants on exchanges. insurance 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, I earn $ 295,000 per year, but I would like to retire early. Can I?
Because you are a single dad, I feel compelled to mention estate planning needs. It’s never a fun aspect of planning, but keeping your child safe and secure in an emergency is so important.
“Another thing to consider is his son’s place in the plan,” Fox said. Think about who would act as a custodian if an unfortunate event occurs before he becomes an adult, and how your assets are set up to pass to him if that’s what you want. Review your beneficiary designations, create a will, have a power of attorney and health care power of attorney drawn up on your behalf, and make sure everything is exactly the way you want it to be.
The fact that you are your son’s primary caregiver is also a reason to make sure that any medical, disability and life coverage is appropriate as this would help provide lost income for child care expenses in the event emergency, Fox said.
I’ll leave you with that. Retiring at a young age sounds like a dream to many people, but you’ve already mentioned a very realistic outcome: being bored without a job. Since you’ve already come to terms with the fact that you might not be happy leaving the workforce, even if 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 now pursue what is called “financial independence,” which means they have the economic means to leave the workforce, but they are taking advantage. to pursue a passion or hobby. or a dream instead.
A part-time job, or even a lower paying job in a field that really interests you, could also give you health insurance.
“A lot of people see retirement as the finish line of a productive life,” said Hardy. “We call it ‘withdrawing from’ something instead of ‘withdrawing from’ something. Most of the first group end up being very disappointed with what they thought retirement would look like, and some even experience a level of depression. ”
Take the time to assess your options – would you like to consult in your field? Go back to school to learn a new trade? Take up a hobby? Trying to volunteer for a cause you care about? Pick up and travel the world? Or juggle 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’re ready to retire, and may even generate more income when you retire, but plan for early retirement before you implement it. .
“Some clients also like to work harder after achieving financial independence, knowing 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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