I’m 51 years old and don’t have a large nest egg. I am a single parent and have three children. I’m a middle school second career teacher so there isn’t a lot of money left over every month.
How Much Money Should I Save to Retire in My 70s? Where should I put the money?
You have 20 years left to build your nest egg if everything goes as planned. Sure, you’ve missed the extra years of compounding you would have received if you had made significant savings in your 20s and 30s. But that’s not unusual. I’ve received many letters from people in their fifties or sixties who haven’t saved anything asking how they can retire next year.
I think it’s good that you’ve been wanting to work longer to make up for a late start. But here’s my nagging worry: what if you can’t work well into your 70s?
The unfortunate reality is that there are many workers forced to retire early for a variety of reasons. They lose their jobs or have to quit for health reasons or take care of a family member. Hence, it is important to have a Plan B in place if you have to leave the workforce earlier than hoped.
Retirement planning is of course associated with a lot of uncertainty. But since I do not know what you earn, whether you are in debt or how much you have saved, my answer to your question of how much to save is the vague and unsatisfactory answer: “As much as you can.”
Maybe I can be more helpful if we work backwards here. Instead of talking about how much to save, let’s talk about how much to retire. From there, you can set savings goals.
The standard recommendation is that you need to replace around 70% to 80% of your early retirement income. Of course, if you can retire without a mortgage or other debt, you could be wrong on the downside – maybe even less.
For the average worker Social security benefits will replace about 40% of income. If you can still work two decades and get your maximum performance by the age of 70, you can probably count on your performance to replace a lot more. Your benefit is up to 76% higher if you can delay until your 70th birthday instead of filing a claim as early as possible at 62. This can make a huge difference if you don’t make savings.
However, since a Plan B is essential here, let’s just assume your Social Security benefits are 40%. So you need at least enough savings to cover 30%.
If you have a retirement plan with an employer match through your job, your ultimate goal is to receive this full contribution. Then try to get your maximum performance Roth IRA Contribution. Since you are over 50, you can contribute $ 7,000 in 2021. However, for those under the age of 50, the limit is $ 6,000.
When you’ve maximized your posts below that Current limits If you invest $ 583 a month and get a 7% return, you will have $ 185,000 after 15 years. If you’ve been doing this for 20 years, you will have a little over $ 300,000. The benefit of saving in a Roth IRA is that the money is tax-free in retirement.
The traditional rule of thumb is that you want to limit your retirement earnings to 4% per year to avoid your savings surviving. However, this rule assumes that you will have retired for 30 years. The longer you work and don’t use your savings, the more you can withdraw later.
Choosing what to invest in doesn’t have to be complicated. If you open an IRA through a major broker, you can Use algorithms to invest automatically Your money will depend on your age and when you want to retire.
By now you’re probably wondering, how am I supposed to do all of this as a single mother on a teacher’s salary? It pains me to say this, but your situation may be one where even the most extreme budgeting is not enough to stretch your paycheck as far as possible. You may need to look for ways to earn extra income. Could you use daylight saving time or at least one weekend day a week to make extra money? Some teachers make extra money by, for example, tutoring online or teaching English as a second language virtually.
In fact, I hate to suggest that. Everyone who teaches middle school really deserves their free time. Unfortunately, there is nothing I can do about the fact that we underpay teachers. I want a solution for you that doesn’t require you to work forever. That may mean you have to work harder now.
Robin Hartill is a certified financial planner and senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.
This article originally appeared on www.thepennyhoarder.com