I’m 50, divorced, making $60K/year with just $100K in retirement after paying $180K for my kids’ college tuition — can I still retire comfortably by 65 without sacrificing my lifestyle?
By the time you turn 50, ideally, you’d have around six times your household income saved.
But, let’s say you hit that milestone birthday with significantly less in your retirement account. While you had a solid financial plan at the start of your career, things came up. An expensive divorce set you back, and then both your kids needed help paying for college — to the tune of $180,000.
Now, with a salary of $60,000, you should have $360,000 invested. Instead, you have just $100,000. You’re a little bit behind where you need to be.
So, the big question is, can you still retire comfortably at age 65 while maintaining your current lifestyle — despite the fact that you may not have quite as much invested as you should at this phase of life? Here’s how you can find out.
If you’re hoping to retire at 65 and you’re only 50 right now, the good news is that you have some time to catch up. To do that, you’ll want to start by seeing how much you must invest so you’ll have enough money to stop working at your target retirement age.
Ideally, you’ll end up with a nest egg worth 10 times your final salary. If you’re making $60,000 now and assume around a 2% average annual salary increase until retirement age, your final salary would be around $80,752.10. So, you’d want to shoot for a nest egg of $807,521.
If you’re starting with $100,000 and you earn an 8% average annual return, you’d need to invest $1,504.81 per month to hit your goal. Investing $18,057.72 per year would mean you’re contributing nearly 30% of your income. That’s a lot. Even with tax breaks and employer matching contributions (if available) it might be hard to pull off. In other words, you might be able to set yourself up for a comfortable retirement, but you’re looking at a pretty austere 15 years.
Unless you’re willing to make some very major sacrifices, putting off retirement for a few years could be very helpful. That’s especially true since retiring at 65 would mean retiring before your full retirement age for Social Security, which will be 67 based on your birth year. Retiring early results in a reduced benefit.
If you waited until age 70 to retire instead of leaving work at 65, you’d have an extra five years to invest. Plus, not only could you avoid shrinking your Social Security check, but you could actually increase it instead by earning delayed retirement credits. Waiting to claim benefits at 70 with an FRA of 67 results in a 24% increase to your standard benefit.
That extra five years could make all the difference. While your savings goal would increase to $891,568 to account for five more years of salary growth, you’d be able to hit that target with an investment of just $774.79 per month, or $9,297 per year — a much more reasonable 15% of your income.
The extra time allows compound growth to work for you, putting retirement within reach. With the higher Social Security benefit and the fact your savings won’t have to support you for as long, your financial life gets a whole lot easier.
Putting off retirement for an extra five years may be a disappointment, but the reality is that preparing to leave the workforce in your mid-60s often means making other sacrifices. Specifically, you would likely have been able to hit your target if you hadn’t paid for your children’s college.
Many parents want to pay for school for their kids to spare them the burden of student loans. That’s fine if you have saved throughout their lifetime while also investing for retirement. If that’s not the case, then prioritizing this financial goal over retirement savings can put you in a tough spot.
While many parents report college savings as their top priority, the reality is that retirement should be the number one goal as kids can borrow for school and have their entire career to pay off the debt while there are no loans to fund a secure retirement. Parents who don’t invest enough could end up being a bigger burden on their kids later than student loans would have been.
Of course, since you’ve already paid for college, the choice has been made — now the only decision left is whether to work longer, sacrifice a lot to invest and retire on time, or put off retirement for a few years until you can catch up on savings to have the security you deserve.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
