Guide for Deciding When To Retire

For a financially secure retirement, we save for decades.

It can be both exciting and overwhelming when that time comes. It is an important decision to decide when you want to retire.

How to Decide When to Retire

Around 65 is the traditional retirement age. The best time to retire is not yet established. The decision about when to retire depends on each individual. Have you ever taken the time and thought about what retirement means for you?

Many factors can have an impact on your retirement finances, including the date you retire. These could include Social Security distributions and benefits from your previous employer.

How does age affect retirement savings income

There is no right age to retire. However, compounding returns will make you more financially secure if you begin investing sooner. You'll be able to save money by investing early. Your investments will accumulate more earnings in the stock exchange.

Even if you are not yet at retirement, there are incentives that will encourage you to start investing in your future. You can contribute more to your retirement if you're 50 or older through tax-advantaged retirement funds. The 2022 maximum annual employee contribution limit is $20,500 for 401(k), 403(b), and most 457 plans. However, there is a $6,500 catch up contribution for plan participants who are 50 years old or older.

Social security benefits are another way that age can affect your retirement. Social security benefits can be limited depending on your retirement date. A 2020 Social Security Administration Trustees Report states that by 2034, 78% of the scheduled benefits will be covered by payroll taxes, which is expected to provide most of the funds for social security benefits.

You should also wait until 70 to receive social security benefits. Social security benefits are eligible even though they start at age 62. Your monthly Social Security benefits will be 32% higher if you wait until 70 to take it. This is dependent on your health and longevity factors, which are unique to each person.

These are seven things to think about when you're trying to figure out the best time and age to retire.

1. Are you eligible for a pension?

It might be a smart idea to retire when you reach the anniversary of your first day at work, if you are employed by the government or another employer offering a defined-benefit pension plan. You'll get an additional year of service credit towards the calculation of your pension benefits.

2. Are you able to save any cash?

Financial advisors suggest that you save enough money in a liquid-cash account to cover your first few years of living expenses once you retire. If the market drops at the time you start your retirement, you don't need to draw from your retirement funds.

7 Ways to Save For Retirement

If you do not have cash savings, and you will need to begin withdrawing money from your retirement fund as soon as possible, you might consider retiring very early or late in the year. This will allow you to avoid having to withdraw money from your retirement account in an income year that could push you into a higher tax bracket.

3. Do you think about early retirement?

Although 65 is considered to be the official age for early retirement, many are choosing to retire earlier than that. You will pay a 10% penalty for any withdrawals made from a traditional IRA, 401k or other retirement account before you turn 59 1/2.

If you are 59 1/2 years old or older in the year that you plan to retire, it is best to wait until your birthday to start taking distributions from these accounts. This will avoid an early withdrawal penalty.

Continue reading: When can you withdraw from your 401k or an IRA penalty-free?

4. Are you required to receive minimum distributions (RMDs).

The Secure Act increased the minimum age that individuals can withdraw money from retirement accounts from 70.5 to 72 starting in January 2020. The bill also allows individuals who are working to contribute to traditional IRAs beyond the age of 70.5.

5. Do you plan to continue working part-time after your retirement?

Today, many people choose to work as freelancers or contractors to make extra money for retirement. Your Social Security benefit amount could be decreased if you work part-time and choose to begin receiving Social Security benefits prior to reaching full retirement age (FRA), which can vary depending on your birthyear.

You can:

You must be at full retirement age by 2022. Your earnings for the month of January are less than $1,580 and you have not performed substantial self-employment services.
You reach full retirement age by 2022. Your earnings must be $4,210 or lower and you have not performed substantial self-employment services.

If you are retiring before FRA, but anticipate earning more than $1,580 per month in income, and you will reach FRA sometime within the year that you plan to retire, it is best to wait until after your birthday to claim Social Security retirement benefits.

6. Are you a recipient of vacation pay?

Find out when your employer will pay you if you have accumulated a substantial amount of vacation pay. This vacation pay will be treated as earned income and subject to the earnings rule. It might be a good idea to wait until you have the funds to retire before applying for Social Security benefits.

Read More: At What Age Can You Get Social Security?

7. Are you going to turn 70 this year?

You can increase your monthly benefits by waiting until you reach FRA before you start receiving Social Security benefits. This is true up to age 70 when the benefits stop.

If you are planning to celebrate your 70th Birthday in the year that you retire, it is a good idea to consider retiring and applying for Social Security. You will no longer be eligible for Social Security and you can't delay retiring.

Our Take

Many factors go into choosing the right time of year for retirement. What is the process of retirement? Personal Capital's Retirement Planning can help you understand how retirement at different times may impact your savings.

For more information about your particular situation, we recommend speaking to your tax and financial advisors. These and other important retirement decisions can be guided by Personal Capital financial planners.

Find out more about our Wealth Management Services

Calculate Your Retirement Readiness Now

Frequently Asked Questions

What is a Precious Metal IRA and How Can You Benefit From It?

Precious metals can be a good investment for retirement accounts. They are a timeless investment that has held its value since the beginning of time. The best way to protect yourself from inflation is to invest in precious metallics such as platinum, silver and gold.

In addition, some countries allow citizens to store their money in foreign currencies. You can buy gold bars in Canada and keep them at home. You can also sell these gold bars for Canadian dollar when you visit family.

This is an easy way to invest precious metals. This is especially helpful if you don't live in North America.

How to open a Precious Metal IRA

You can open an IRA in precious metals by opening a Roth Individual Retirement Account (IRA), which you can self-direct.

This account is better compared to other types because you don’t need to pay any taxes until you withdraw the investments.

This makes it attractive to those who want a tax break but still want to save some money.

You don't have to invest in silver or gold. You can put your money in almost any item that meets the IRS guidelines.

People often think of silver and gold when they hear “precious metal” but there are many other precious metals.

Examples include platinum, palladium and rhodium.

You have many options to invest in precious metals. These include purchasing bullion coins and bars, as well as shares in mining companies.

Bullion Coins & Bars

One of your easiest ways to get into precious metals is to purchase bullion coins. Bullion is a general term that describes physical ounces, or physical gold and silver.

Bullion bars and coins can be purchased to receive actual pieces.

While you might not feel any change when you buy bullion coin bars or coins from a retailer, you will experience some benefits over time.

For example, you will get a tangible piece of history. Each coin or bar has its own story.

When you look at face value of the coin, you'll often find that it's worth far less than its nominal value. The American Eagle Silver Coin cost $1.00 an ounce in 1986 when it was first introduced. The price of an American Eagle is now closer to $40.00 a ounce.

Since the value of bullion has increased dramatically since its introduction, many investors prefer buying bullion coins and bullion bars rather than futures contracts.

Mining Companies

A great way to get precious metals is by investing in shares in mining companies. When you invest in mining businesses, you are investing in their ability to produce silver and gold.

You will get dividends based off the company's profits in return. These dividends can then be used to pay out shareholders.

Furthermore, the company has the potential to grow. The share prices of the company should rise as more people buy the product.

You should diversify because these stocks have a tendency to fluctuate in their prices. This is how you spread your risk across different companies.

However, it's also important to remember that mining companies aren't immune to financial loss, just like any stock market investment.

Your ownership stake could become worthless if the price of gold falls significantly.

The Bottom Line

Precious Metals such as gold or silver offer a safe haven in times of economic uncertainty.

However, both gold and silver are subject to wild swings in price. If you're interested in making a long-term investment in precious metals, consider opening up a precious metals IRA account with a reputable firm.

You will be able to take advantage of tax incentives while also benefiting from physical assets.

What precious metals may I allow in my IRA?

The most commonly used precious metal in IRA accounts is, of course, gold. As investments, you can also buy bars and bullion coins made of gold.

Precious and precious metals are considered safe investments, as they don’t lose their value over the course of time. They are also a great way of diversifying your investment portfolio.

Precious metals are silver, palladium, and platinum. These metals share similar properties. Each one has its own uses.

For instance, platinum can be used in jewelry manufacturing. You can create catalysts with palladium. To produce coins, silver can be used.

Think about how much you can afford to purchase your gold, before you make a decision on the precious metal. It may be more cost-effective to purchase gold at lower prices per ounce.

You also need to think about whether your investment is private. If you are unsure, palladium is the right choice.

Palladium is more expensive than gold. However, it is also rarer. It's likely that you will have to pay more.

Storage fees are another important consideration when choosing between silver and gold. Storage fees for gold are determined by its weight. For larger quantities of gold, you will be charged a higher storage fee.

Silver is stored by volume. Silver is priced by volume. You will pay less to store smaller amounts.

You should follow all IRS rules if you plan to store precious metals in an IRA. This includes keeping track of transactions and reporting them to the IRS.

Are precious-metal IRAs a good option?

Answers will depend on the amount of risk you are willing and able to take in order for your IRA account to lose value. If you have $10,000 cash, they make sense as long as you don’t expect your IRA account to grow rapidly. These might not be the best options if you're looking to invest in assets that have the potential to rise in value (gold) and plan to save for retirement for many decades. They can also come with fees that could cut into any gains.

Can I physically possess gold in my IRA account?

Many people are curious if they can possess physical gold in an IRA. This is a legitimate question since there is no legal way.

But when you look closely at the law, nothing stops you from owning gold in an IRA.

Most people don't realize the cost savings they could make by putting their gold into an IRA rather than keeping it in their homes.

It's very easy to dispose of gold coins, but much harder to make an IRA. If you decide that you want to keep your gold at home, you'll be responsible for two tax payments. You will pay taxes twice: once to the IRS and one for the state in which you live.

You can also lose your gold and have to pay twice the taxes. Why would you keep your gold in the house?

It might seem that you want the security of knowing your gold is safe inside your home. It is important to store your gold somewhere safer in order to prevent theft.

You shouldn't even leave your gold in your home unless you plan to visit often. If your gold is left unattended, thieves could easily steal it when you're away from home.

An insured vault is a better choice for gold storage. This will ensure that your gold is protected against fire, flood, earthquake and robbery.

Another advantage to storing your gold in a vault is that you won't have to worry about paying property tax. Instead, you will have to pay income tax for any gains you make selling your gold.

An IRA is a way to avoid paying taxes on gold. You don't pay income tax on the interest you earn with an IRA.

Capital gains tax is not a requirement for gold investments. You can cash out your entire investment anytime you wish.

Federally regulated IRAs mean that you won't face any difficulties in transferring your gold to another bank if it moves.

The bottom line? You can own your gold in an IRA. Your fear of it being stolen is what holds you back.

What are the fees for an IRA that holds gold?

The average annual fee to open an individual retirement account (IRA), is $1,000. However, there are many different types of IRAs, such as traditional, Roth, SEP-IRAs, and SIMPLE IRAs. Each type has their own set of rules. If the earnings are not tax-deferred you could be subject to taxes. Consider how long you will keep the money. If you plan to keep your money longer, you can save more money by opening a Traditional IRA instead of a Roth IRA.

A traditional IRA allows you to contribute up to $5,500 per year ($6,500 if you're 50 or older). A Roth IRA gives you the ability to contribute unlimited amounts per year. The difference between them? With a traditional IRA, the money can be withdrawn at your retirement without tax. A Roth IRA will entail taxes for any withdrawals.

How Much of your IRA Should Be Made up of Precious Metals

You can protect yourself against inflation by investing your money in precious metals, such as silver and gold. It's not just a way to save money for retirement.

While silver and gold have seen significant increases in the last few years, they are still safe investments since they don’t fluctuate as often as stocks. These materials are also in high demand.

Gold and silver prices are usually stable and predictable. They tend to increase when the economy is growing and decrease during recessions. This makes them great money-savers and long-term investments.

Precious metals should make up 10 percent of your portfolio. That percentage could go higher if you want to diversify your portfolio further.

Statistics

The IRS also allows American Eagle coins, even though they do not meet gold's 99.5% purity standard. (forbes.com)
If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal so that you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
SEP-IRA”Simplified employee pension” For self-employed people like independent contractors, freelancers, and small-business ownersSame tax rules as traditional IRASEP IRA contributions in 2022 are limited to 25% of compensation or $66,000, whichever is less4. (sltrib.com)
You can only purchase gold bars of at least 99.5% purity. (forbes.com)

External Links

How To

Precious metals approved by the IRA

IRA-approved valuable metals can be great investments. There are many options available to diversify and protect your portfolio from gold bars through silver coins.

Precious Metal Investment Products come in two main formats. Physical assets such as coins and bars are called physical bullion because they can be physically accessed. ETFs, on the other hand are financial instruments that track price movements of an underlying asset such as gold. ETFs work just like stock exchange stocks and can be bought directly by the company issuing them.

There are various types of precious metals available for purchase. Silver and gold are commonly used for jewellery making and decoration. However, platinum and palladium tend to be associated with luxury goods. Palladium has a tendency to retain its value longer than platinum making it an ideal choice for industrial uses. While silver is used in industry, decorative uses are preferred over it.

Due to the expense of mining and refining natural materials, physical bullion is more expensive. But they are generally safer than traditional paper currencies and provide buyers with more security. Consumers may lose faith in the currency and seek out alternatives if the U.S. dollar falls in purchasing power. Physical bullion products on the other side do not depend upon trust between countries and companies. Instead, they are backed up by central banks and governments giving customers peace-of-mind.

Prices for gold fluctuate depending on demand and supply. When demand increases, the price rises; conversely, when supply exceeds demand, the price drops. This dynamic opens up opportunities for investors who want to profit from fluctuations of the price gold. This fluctuation is good news for investors who own physical bullion items as they earn a higher return.

Precious metals are not affected by interest rate changes or economic recessions, unlike traditional investments. The price of gold will rise as long as there is strong demand. Precious metals are safe havens in times of uncertainty because of this.

The most widely used precious metals include:

Gold – Gold is the oldest precious metal. Gold is also called “yellow-metal”. Although gold is a common household name, it is a very rare element found naturally underground. Most of the world’s gold reserves can be found in South Africa and Peru, Canada, Russia and China.
Silver – After gold, silver is the second most precious precious metal. Silver is also mined from natural resources, just like gold. Silver, unlike gold, is often extracted from ore instead of rock formations. Because of its malleability and durability, as well resistance to tarnishing and conductivity, silver is widely used by industry and commerce. Over 98% of global silver production is produced in the United States.
Platinum – The third most valuable precious metallic is platinum. It is used in many industries, such as fuel cells, catalytic converters and high-end medical equipment. Dental crowns, bridges, and fillings can also be made from platinum.
Palladium: Palladium is the 4th most valuable precious metallic. Because of its strength, stability and popularity, Palladium is rapidly gaining in value among manufacturers. Palladium is also used for electronics, aerospace, military technology and automobiles.
Rhodium – Rhodium is the fifth most valuable precious metal. Rhodium is very rare but is highly sought for its use in automotive catalysts.
Ruthenium – Ruthenium is the sixth most valuable precious metal. There are limited quantities of platinum and palladium. However, ruthenium is abundant. It is used in steelmaking, chemical manufacturing, and engine design.
Iridium – Iridium ranks seventh in the list of most valuable precious metals. Iridium is a key component in satellite technology. It is used in the construction of orbiting satellites that transmit TV signals and telephone calls.
Osmium- Osmium ranks eighth in the list of most valuable precious metals. Osmium's ability to withstand extreme temperatures makes it a common metal in nuclear reactors. Osmium can also be used in jewelry and medicine as well as cutting tools.
Rhenium: Rhenium ranks as the ninth-most valuable precious metal. Rhenium can be used to refine oil and gas, make semiconductors and rocketry.
Iodine — Iodine has the highest value of all precious metals. Iodine is used in photography, radiography, and pharmaceuticals.

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By: Personal Capital
Title: Guide for Deciding When To Retire
Sourced From: www.personalcapital.com/blog/retirement-planning/when-is-the-best-time-of-year-to-retire/
Published Date: Thu, 17 Nov 2022 14:00:06 +0000