When is the Right Time to Retire?

Deciding when to retire is a complex question. Many people base this decision around their birthday. The traditional age of retirement is 65 – the U.S. average is actually 63. However, there are many moving parts in this very important decision, a whole host of factors to consider – financial, physical, as well as psychological.

We’ve all had those days when we’d like to hand our boss our resignation letter and sail off into the sunset, leading the carefree life of a retiree. But, this can be a huge mistake if you’re not prepared.

Financial Considerations

  1. Your bank account: According to investment experts, not taking Social Security into account, you’ll need 25 times your annual expenses (the earlier you retire, the more you’ll need).
  2. The Market: The returns on your investments are critical during the first decade of retirement. No one has a crystal ball when it comes to the market, but if the economy is poised for a downturn, it may be wise to delay retirement. This is also the case if your portfolio has taken significant losses in the years leading up to your set retirement date. If this occurs, it may make sense to delay your retirement until your investments have had a chance to recover.
  3. Social Security Benefits: When people plan to retire in their early 60s, typically, a part of their strategy is taking their Social Security retirement benefit at 62 – the earliest claiming age. However, you must keep in mind that this strategy causes a permanent reduction (almost 30 percent) in your benefits compared to what they would be if you waited. People born after 1943 can expect an eight percent increase for each year they wait to claim benefits after full retirement age, with age 70 resulting in the maximum benefit.

    Suze Orman, American author, financial advisor, motivational speaker and television host, strongly advocates waiting until 70 to retire. “Seventy is the new retirement age – not a month or year before,” she exclaims. However, she also adds that if you have a medical condition that prevents you from working or raises the probability that you won’t live into your 80s or 90s, retiring and claiming Social Security earlier may make sense.

  1. Health Care: Recent studies by Fidelity Investments estimate that a 65-year-old couple retiring today will need between $200,000 and $400,000 to cover their health care costs during retirement – above and beyond what Medicare covers. Having additional savings, private insurance or a Medicare supplement policy is an important consideration when deciding when to retire.

Health Considerations

Working longer may better fit into your plans, especially financially, if you are in excellent health and have longevity in your family. However, this is not so if you or your spouse are in poor health. In this case, postponing retirement could mean your opportunities for doing certain things, like traveling, are gone for good. Take an honest look at your health and life expectancy and factor this into your decision about when to retire.

Psychological Considerations 

Another important factor to consider in deciding when or in some cases if you should retire is the psychological impact. You should ask yourself two important questions: 1. Will I be happier and healthier retired or working? 2. Am I psychologically prepared to retire?

Some people enjoy what they do – their jobs give them a sense of meaning and purpose in their lives – and would be lost without this or an activity or passion to replace it. Yet, other people, especially those who find their jobs stressful or unrewarding, are counting the days until retirement.

The key is preparation. Do you have hobbies or interests to fill your time? Have you realistically considered what your life will look like as a retired person?

Many people have unrealistic expectations or ideas of what their retirement lives will look like. They imagine they will take up hobbies, like golf, tennis or playing an instrument. However, being realistic means evaluating your life now…pre-retirement. What are you passionate about or actively involved in now? The probability of developing a passion for something the day after you retire is small.

Studies show that people who have meaningful, purposeful and productive lives live longer. So, the lesson for anyone contemplating retirement is to have a plan for your post-working lives.

As you can see, deciding when to retire isn’t an easy decision. But, by giving it the time and attention it deserves…having a well-thought-out plan…addressing the financial, physical and psychological considerations…you can help ensure your retirement gets off on the right foot.

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