Should you Retire Now?

February 6, 2009

This question is plaguing many baby boomers today. For those on the cusp of retiring, statistics show they plan on working longer. For those who have decided to retire, the decision may carry long-term consequences.

If you have a 401K plan, the maximum annual contribution you can make in 2009 is $16,500. However, if you are over the age of 50 you can contribute a total of $22,000.

If you have an IRA, you can contribute up to $5,000, and for individuals 50 years or older, another $1000 can be added.

The problem with retiring now is that since the market downturn, many people lost a hefty sum of money in their 401K due to their equity investments. So the question is: How much do you currently have available in your 401K and can you live on the pension and retirement funds during this recession?

The only way to determine this is to go over your financial accounts and assess how much is available and how much you will need to live comfortably. If you find that you cannot afford retirement now, you may need to postpone it for two to three years. Since we know that this recession may last well past 2009, it would be a prudent step in your favor to wait.

In addition, if you decide to retire at 62 years of age you can delay receipt of the Social Security benefits until you reach age 66. Why is this important? The full benefit at age 66 is approximately $1900. However, if you decide to collect earlier you can lose $500 per month.

Also consider that if you postpone collecting Social Security, there is an 8% credit for each year you do not receive a check up to the age of 70. The benefit at age 70 would be approximately $2500. Therefore, the difference between collecting benefits at age 66 and 70 is $1000 a month – not an insignificant sum.

Yes, there is a lot to consider before taking that last step to retirement. For one woman who retired at age 57, the loss of pension income was significant. Moreover, her 401K is far less than what it would have been if she had worked an additional three to four years. That additional time could allow her 401K to recover some losses.

Before you decide to retire, make sure that you have enough money saved to see you through this recession and beyond. If not, you may find that retirement is not at all what you had envisaged. In fact, you may have to find another job after retirement just to supplement your pension.

These are difficult times. Weigh all the factors; think it through carefully and soberly before you sign on the dotted line.

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