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The simple answer is, of course you can. However, “Can I afford to retire?” is a different and more important question.

While some people find ways to retire in their earlier years (40’s- 50’s), most work well into their 60’s and even 70’s. The ever-increasing mandatory distribution and social security age is evidence that our aging population is working to later ages and living longer. Which brings us to the underlying heart of the question. “If I’m expected to live longer than my parents and grandparents did, will I need to work longer? Should I be concerned I will not have enough assets to provide me with income for my life expectancy? Or, better yet, can I even pay my current obligations when I choose to retire?”

To determine what your annual retirement needs will look like, you’ll need to consider not only your needs but also your wants. Many people examine their future retirement and think: “I need to pay my bills, taxes, insurance, food expenses exc.” But don’t forget to include your wants. “I want to travel, I want to start a new hobby, I want to buy gifts for family members on holidays and special occasions.” Consider if your retirement would involve relocating to another city to be near fairer weather or closer to family, as this could affect expenses in either a positive or negative way depending on the cost of property, living expenses, or other prices compared to your current situation.

The average social security benefit is around $1,460 per month. Remember: this benefit was designed to only provide you with about 30% of your retirement needs. Retirement income should also consist of your company retirement plans (401(K)’s or pension benefits) as well as your personal savings and investments you have built up through the years. How you transition these into income provisions will have a major impact on the lifestyle and consistency of it throughout your retirement years. For example, a person in the middle of their working years (35-40) whose annual income is around $65,000 could expect about $44,000 from social security if retiring at 65. If that person were to determine a need for a pre-tax income of $80,000 a year in retirement, their social security income will be about half or less depending on their tax situation. They will need to make up the remainder from personal savings and retirement accounts. Using a 4% rule, this would mean that it would take around $900,000 between retirement accounts and personal savings/investments before making that choice to retire. This provides realistic earnings of 4% on the current assets and even allows for a cost of living adjustment through the years.

Keep in mind also that working through that early retirement “honey-do” list or the startup of a new hobby or even the relocation expenses needs to be from a separate source of funds as every lump withdrawal forever impacts the earnings potential of the remaining funds.

With all of this in mind, form a plan for your retirement that fits your situation and your dreams. Review current financial obligations and their future ending dates, detail your needs and wants for the retirement you aspire to have, and set a course to achieve your goals. You spend your employment years working too hard to not enjoy your retirement to its fullest potential.

By Russ Pierce

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

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