For many workers, retirement is a dream that can't come true soon enough. Especially if you've been working for decades, you may not be able to wait for the day you can finally leave your job and start spending each day however you please.
But saving enough to retire comfortably in your 60s is tough, and retiring earlier than that can be an even bigger challenge. More than half (53%) of workers in their 50s have less than $100,000 saved for retirement, according to a survey from TD Ameritrade, and 85% have less than $500,000 stashed away. It might take more than that to retire early -- and if the coronavirus pandemic has wreaked havoc on your retirement savings, you might need to rethink your plans.
If you're determined, though, it is possible to retire at age 55. Here's how to tell if you're on track.
Are your savings on track?
Everyone's saving goals will be different, so there's no one right answer as to how much you need to save to retire by age 55. Some people may be able to get by on a few hundred thousand dollars, while others may need well over $1 million saved to retire comfortably.
How much you'll need will depend on a few factors, such as how much you expect to spend each year in retirement and how long you predict you'll live. Although you may not be able to come up with 100% accurate answers to these questions, estimate the best you can.
Establish a retirement budget to estimate your future costs, and don't forget about expenses like healthcare. You won't be eligible for Medicare until age 65, so by retiring before that, you'll need to find another source of health insurance. In addition, you can't begin claiming Social Security benefits until at least age 62, so keep that in mind as you're determining how much of your savings you'll need to withdraw each year in retirement.
As you're estimating your life expectancy, it's a good idea to assume you may live longer than you think. One-third of today's 65-year-olds can expect to live into their 90s or beyond, according to the Social Security Administration, and 1 in 7 will make it past age 95. If you end up living several years or even a decade or two longer than you planned, your savings may run dry too quickly.
Once you have these estimates in mind, run your numbers through a retirement calculator to estimate how much you should save to retire by age 55. The calculator will also tell you how much you should be saving each month to reach that goal. If those results are within your budget, you may be able to reach your retirement target.
How COVID-19 may affect your retirement plans
The coronavirus pandemic has caused the stock market to plummet, and your retirement savings may have taken a hit as well. Because there's no way to tell exactly when the market will recover, you may need to be flexible with your retirement plans.
One thing is for sure, however: Right now is not a good time to retire. Withdrawing from your retirement account when stock prices are at rock bottom isn't the best idea because you're locking in your losses. Although your account balance may be lower now than it was a few weeks or months ago, you don't technically lose any money until you sell your investments. By withdrawing right now, you're essentially buying high and selling low.
For that reason, it's wise to hold off on retiring for at least another year or two until the market starts to recover. When the market bounces back, your investments should recover as well.
In addition, do your best to continue saving in your retirement fund even when the market is down. If times are tough right now, you may need to allocate more cash to paying the bills and establishing an emergency fund. But if you can swing it, investing now when stock prices are low can pay off big time down the road when the market recovers.
Planning for retirement can be challenging, especially when everyone has different saving goals. The good news, though, is that it is possible to retire early -- as long as you've done your homework.