So when do you start to plan for your early retirement? Remember “Thought and effort” from an earlier post? The best time to start your retirement planning is now. The way I started, was to determine where I was. Then what age did I want to retire? And then I had to figure out what I would need in dollars to get there.
Let’s say you were born in 1960. In 2010, you are going to be 50 this year. (Don’t forget to join the AARP! They offer discounts on “stuff”.) Social security, if it is still around, won’t start for you for another 12 years at 62. So you won’t have to worry about that calculation for a while yet. But still, you should be getting a social security statement every year about 90 days before your birthday. It shows what your projected benefit is at 62, 66 and 70.
If you are 50 this year, you might want to retire at 55. That’s five years from now. So the first thing to figure out is where you are right now – today – and the method I used for that was to have a retirement spreadsheet calculator.
Take a look at this spreadsheet from Google Docs:
TER Retirement Planning Spreadsheet
I call this spreadsheet xxx nnnn Retirement. xxx represents the month you want to retire and nnnn represents the year. So if you want to retire in May, 2015 you could save this spreadsheet on your computer as May 2015 Retirement. If you want to retire in September 2020, you could save this spreadsheet as Sep 2020 Retirement. Note cell B3. There is a letter H and in C3 there is a letter W. Since I don’t know you, I am going to assume that your family consists of a Husband and a Wife. If you are a single person, fill in one column or the other so you can see your age next to the year. But on B5 I have your current age. And all the way down column B to row 19 are the ages that you will be next to column D.
I filled in column B5 as 50. Your age might be more or less. Fill in your current age. Just overwrite the cell and put in your age. I have prefilled in cell D5 with April 15, 2010. I selected April 15 as an arbituary date. The date you want to retire might be different. April 15 is Income Tax day in the US and that is why I have selected that date. It’s the date I retired. 🙂
I have $ Start Date in column E. That would be the date you want to start your retirement to start paying you $$. Column F is a pension plan if you have one. Since the company where I worked offered a pension plan, I created that column to track the amount of money I would have if I chose the pension option where I worked. The earliest I could draw a penison was age 55 so you will see an amount of money next to age 55 in that column. It goes up every year that I wait to collect. (Which I didn’t.)
You might be in the military, so you can retire at 38 if you joined at 18, or you might wait until you have 30 years. It’s up to you. If you work for the US Post Office, you can calso retire after 20 years of service. Most city and state governments will let you retire after 20 years, so when you want to reitre is up to you and the place where you work.
Column G and H is Husband Social Security (H SS per month) per month and Wife Social Security per month (W SS per month). You can check out this web site: Social Security Quick Calc
to get an idea of what your benefit will be. It’s just a quick calculation but it will give you an idea. It is fun to plug in the numbers to see what you might get if the system is still around when you try to get your payments. Now with the tax statements coming in this month in January, you should be able to get a pretty good idea of what benefit you could get.
I have a column I and it is labled Pension Amount. If you have a W in column H, and your wife gets a pension, you can fill in that column. Column J is the result of any Roth or Traditional IRAs that you have. I had three Roth IRAs for my particular situation, so I have three columns – O, P and Q. If you total all three columns and multiply by 7% and divide by 12 you get the number that appears in column J. So the heading in column J shows OPQ per month at 7%.
I will cover where you can get 7% on your money in 2010 in another post. I can show you where you can get 10% from a utility company stock dividend, so 7% is attainable and a good number for planning.
I have been doing an investment account since 1974 and make $10,000+ on the account every year after tax. I have that account in column R. Last year I made about 40%, so the amount of money in 2010 is a conservative figure. You can change it to meet what your investment returns are. The column is just an example anyways.
Column M shows the total each month not including column R in the investment account. You might not have an investment account like I do. Column N shows what the annual income would be with the investment account. You’ll notice that cell K10 is higher than cell K9. That’s because in cell K10 my pension kicked in.
I put the letters O, P, Q and R on line one in columns O, P, Q and R because when I did a print out, you could not easily tell where the amounts for the calculation for column J or L were coming from. Having the letters for the column made it easier for some one looking at a print out. I put a yellow arrow in column A next to the date where I wanted to retire so I could check that number from time to time to see if I was on track.
I don’t know when you will retire at 62, 66 or 70 so I have ?? where the date appears in D & E17, D & E18 and D & E19. If you are going to wait until then you are t62, 66 or 70, you might want to read a different blog. This one’s about retiring early. But then maybe you are retiring early at those ages. Who am I to say.
Let me know what you think about the spreadsheet and if any columns need more explaining. I hope you retire sooner rather than later!
Jeremiah John