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Ripe for Retirement: How Will You Know?

  • 13 May 2014
  • Author: Cari Holbrook
  • Number of views: 3262
  • 0 Comments
Ripe for Retirement:  How Will You Know?

Most small business owners retire at around 73 years of age, according to the U.S. Small Business Administration. From a financial perspective, what is your best retirement age? And can you beat these odds and retire younger? The answer differs for every business owner. Here, we take a look at three factors that can help you determine when your nest egg is ready to be tapped.

1.       Your IRA and other investment savings. As you are probably aware, 59 ½ is the golden age to begin withdrawing money from an IRA without tax penalty. However, there are exceptions to this tax trigger. First, money can be withdrawn from an IRA tax-free for other specific reasons:  Namely, to pay medical bills, health insurance expenses, disability expenses, or even college tuition for you, a spouse, a child or a grandchild. Second, you can set up annuity payments over your lifetime and avoid the penalty for early withdrawal. Following the specific rules on these exceptions can be tricky, however, so you may want to consult with us before charging ahead.

2.       Your succession plan. Transferring a family business successfully (whether to family, employees, or an unfamiliar buyer) doesn’t happen in a bubble, and it doesn’t happen overnight. We often recommend putting a succession plan in place at least five years before your retire (10 years is even better). This allows you to change tax structure or alter strategies that might help both you and the business have a successful transition. While you may feel ready to retire, your business may be far from ready.  The best age for retirement may depend heavily on the strength of your exit strategy if your business is to survive the next generation.

3.       Your health. You can choose to start receiving social security benefits as young as 60 years old. However, the longer you wait to receive your benefits, the larger your monthly payments will be.  If you’re relatively healthy, you may want to wait until you are 70 years old in order to increase your monthly income. Also, keep in mind: Social security is taxable at a relatively moderate income level.  Taxes kick in at 50 percent of benefits for a combined income level of $25,000 and at 85 percent of benefits at a combined income level of $34,000. If you are healthy,  find ways to stretch your income over the long term to avoid unnecessary taxes. This may mean holding off retirement or tapping into other income sources for a few extra years.

When you understand how your savings, succession planning and health are working together –either for you or against you – your own unique retirement age will begin to come into focus. If it’s not the age you hoped it would be, take steps to change it. It’s never too late to plan for the road ahead.

Image credit: essl / 123RF Stock Photo

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