When you plan your retirement, there’s a lot of math involved. As a result, many people turn to retirement withdrawal calculators to estimate what they will have available when the time comes based on their actions today. However, by using a slightly different approach, you can actually figure out how to retire sooner by using a retirement withdrawal calculator. If you want to see how that works, here’s what you need to know.
Choose a Robust Retirement Withdrawal Calculator
Not all retirement withdrawal calculators are created equal. Some have more options and features, allowing you to tweak various inputs, adjust certain assumptions, and make other changes. That will enable you to experiment by altering your scenario, making it easier to visualize how specific adjustments to your investment strategy could pay off.
Different calculators offer different benefits, so you may want to explore a few along the way. Here are some great starting options that are worth exploring:
If your goal is to potentially retire before you are eligible to make withdrawals from your retirement account without a penalty, then you may want to explore the Wells Fargo Early Distribution Costs Calculator. It helps you assess the tax implication and fees if you take distributions from a 401(k), 403(b), 457(b), or similar plan before reaching full eligibility age.
Define What Early Retirement Looks Like
For many, early retirement doesn’t involve fully stepping away from the workforce. Instead, it’s a transition into a different kind of professional life. For example, it may include leaving a full-time, high-stress job and shifting into a less demanding part-time role. Alternatively, you may want to freelance occasionally, only picking up projects that feel like a great fit.
Before you do any additional calculations, define what early retirement would look like for you. Determine whether you could have a source of income aside from your retirement savings. That way, you can factor that into your math, allowing you to get a better idea of when walking away from your current professional paradigm is viable.
Assess Every Figure Carefully
When you use a retirement withdrawal calculator, you have to make some assumptions. For example, you have to estimate how much you’ll need each month and what you’ll pay in taxes. The issue is, many people get these figures wrong, at least to a degree.
For instance, when it comes to monthly income requirements, are you factoring in the cost of your mortgage? If yes, is that going to be an expense you’ll shoulder indefinitely? In many cases, your mortgage may disappear before or not long after you retire. That eliminates a major cost that you’ve incidentally assumed you are covering until death, dropping your monthly income needs dramatically for at least a portion of your retirement.
Similarly, using your current tax rate in the calculation might be a mistake as well. You need to see if your income needs will decline during retirement. If so, then you might fall into a different bracket.
Many people also forget to factor in Social Security benefits. As a result, they mistakenly believe they’ll need to pull out more from their retirement account than is necessary to provide their target monthly income.
It’s important to factor in Social Security when you plan for retirement. You can head to the mySocialSecurity portal to see a personalized estimate of what you’ll receive once you are eligible, making it easier to account for this income source while you’re planning.
Ultimately, you want to take a hard look at every figure the calculator requests. Make sure what you are inputting is an accurate reflection of how things will proceed. While being perfectly spot-on isn’t possible, as there are situations that are challenging to predict, you want to be reasonably close. That way, you can see how far your money will actually go.
Decide How to Make Early Retirement Possible
After going through the steps above, you may discover that you can already plan on retiring early. For some, no changes will be necessary to make that happen.
However, if it looks like you are falling short, you can make choices based on the data you’ve collected. You might determine that saving more in your retirement account, opening and funding a secondary account, or saving and investing separately is the best move. Securing a higher income could also be an approach, giving you more money to set aside. At times, finding ways to cut your expenses can be the simpler road, reducing your monthly income needs so that your account can support an early retirement.
In the end, multiple paths could be viable possibilities. And, with the retirement withdrawal calculator, you can estimate the impact of every decision. That way, you can select an approach that bests meets your needs, ensuring your retirement dreams can come true.
Can you think of any other ways people can use retirement withdrawal calculators to retire sooner? Share your thoughts in the comments below.
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