How to Get Back on Track After Early Retirement
Feeling a little guilty about how much you’ve saved (or didn’t) for your retirement? Maybe you actually took money out of your retirement accounts long before your golden years. Well, you are far from the only one who made this move.
According to a new study by Bankrate , 49% of people with retirement accounts withdrew before retirement age. The most common reasons for this were unemployment, medical bills or other unplanned expenses or debt repayment.
More than half of the 2,697 respondents admitted that they do not have enough retirement savings.
Early retirement can have a long-term impact on your post-retirement financial stability. You will first pay taxes and a 10% early withdrawal fee (unless you are taking money from the Roth IRA for a good reason ). This means you will have less cash to use for your basic needs than what you would have in your account. And then you need to catch up again.
Increasing your savings rate after early withdrawals at retirement can be stressful because you can’t rewind time to a time when you were younger – you need to make the most of the remaining time before you can start withdrawing hands from your accounts. …
Bankrate recommends supplementing your retirement savings by maximizing your 401 (k) – especially if you have the right company – and complementing those IRA savings. “You should aim to set aside 10 to 15% of your income for retirement,” advised Greg McBride, chief financial analyst at Bankrate.
But what if you have withdrawn money from your retirement account because you are facing severe financial instability, such as unemployment or medical bills that were cited by survey respondents? You may not be able to bounce back and start investing 15% of your income in retirement savings right away.
McBride said to remember that this kind of economy is a long game. “An adequate retirement egg is the result of decades of disciplined savings,” he said. If you can save for the emergency first when you resume saving for retirement, you reduce the risk of having to plunge into retirement account again. The key is to restart your savings plan as soon as possible. “The longer you wait for the start or for the increase in capacity, the deeper you dig the future hole,” he said.
McBride warned against resuming savings too gradually after a withdrawal. “You can’t indulge in it saving 3% or 5%, or keep putting it off and hoping to accumulate what you need.” If you’ve taken an egg from your nest, make a plan to reinforce your savings plan again as soon as possible.