One indicator that our economy is still hurting is that more and more people are postponing retirement. According to the Department of Labor, the number of people over 55 still working has increased steadily since the recession began -- 28.9 million at last count -- and some surveys show more than a third of employees expect to work past age 70 or never retire.
A perfect storm of negative factors has forced many people into this position:
If you're hoping to retire in the next few years, consider the following:
How much will you need? Financial planners often suggest people may need 70 percent or more of pre-retirement income to maintain their current lifestyle, but it's difficult to generalize. For example, some people downsize housing or retire to less expensive areas and thus need less. Others can expect increased medical, utility and other bills to outpace earnings on their savings.
Crunch the numbers. Start estimating your retirement needs by using online calculators, including:
Consult a professional. After you've explored various retirement scenarios, consider paying a financial planner to help work out an investment and savings game plan. If you don't have a personal referral, good resources include the Certified Financial Planner Board of Standards, the National Association of Personal Financial Advisors and the Financial Planning Association.
Social Security issues. To make ends meet, many people begin drawing reduced benefits from Social Security before reaching full retirement age (65 for those born before 1938 and gradually increasing to 67 thereafter). This can have several financial consequences:
If you begin drawing Social Security while still working, your benefit could be significantly reduced depending on your income. Read How Work Affects Your Benefits for more details. Rest assured, however: Those reductions aren't truly lost since your benefit will be recalculated upward once you reach full retirement age.
If you're still working when you begin drawing Social Security, your benefit could be significantly reduced. The benefit reduction formula is rather complicated and depends of whether your income exceeds certain levels as well as on when you reach full retirement age.
Other tax implications. Even if your income drops significantly after retirement, chances are you'll still be taxed on a portion of it, including withdrawals from regular IRAs and 401(k) plans. And, depending on where you choose to retire and your income sources, you'll probably also face additional taxes on everyday purchases, real estate, capital gains, inheritances -- the list goes on.
The Retirement Living Information Center features breakdowns of the various kinds of taxes seniors are likely to pay, state by state, including taxes on income, sales, fuel, property, inheritances and other items. For more on taxes in retirement, read my previous blog, "Taxes Follow You Into Retirement."
One last suggestion: Once you've settled on what you think will be a sufficient retirement budget, try living on it for a few months first before retiring to make sure it actually works.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
Follow Jason Alderman on Twitter: http://twitter.com/PracticalMoney
Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney