What is the best age to retire?

May 02, 2017
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What’s the best age to retire?  It depends. 

Some people enjoy their work so much that retirement isn’t something they even want to consider.  Others want to retire as soon as possible. 

There are a lot of factors that go into the decision about when to retire.  Here are four general rules for choosing your best retirement age. 

  1. Know what you’ll do after you retire.  Probably the most important step in determining when you should retire is figuring out what you want to do after you retire.  A 2012 study conducted by Elizabeth Mokyr Homer. PhD., of U.C.revealed, that many retirees experience a ”happiness rush” shortly after retirement.  However, that period soon fades and is followed by a significant decrease in the quality of life. 

The bottom line is that you could be bored if you don’t have plans for what you’ll do during retirement years.  It could be doing volunteer work for a cause you enjoy and feel good about.  Or, it could be that playing golf or traveling will be enough to keep you active and happy.  However, many retirees go back to work in some capacity---not because they have to, but because they want to.  As one client said, I quit a high paying  crappy job for a low paying job that is fun and that I love

A Merrill Lynch study that surveyed retirees in 2014, concluded that four-fifths of them chose to work even though they didn’t have to do so.  The top reason they cited for continuing to work was “to stay mentally active.”  The second-highest response was “to stay physically active.”  The important thing is to remain physically and mentally active, which has been proven time and again to be essential to retirees’ happiness. 

  1. Make sure that you have enough money to retire.  You need to ensure that your financial resources will be able to support you during retirement, regardless of when you decide to retire.  For some, money will decide their retirement age for them. 

There are several general rules that you need to consider.  First, you’ll probably need about 80% (a safer plan is to consider 100%, depending upon your own lifestyle) of your current income to maintain the same standard of living in retirement.  Second, you should only withdraw about 4% of your retirement nest egg each year to avoid running out of money.  In a 25 to 30 year retirement, inflation can double the cost of living, which needs to be considered.  Understand that these aren’t exact rules, though.  Inflation rates, interest rates, your investment returns and a lot of other variables may affect how much you can safely withdraw each year. 

Social Security will be a major source of retirement income for most Americans.  If you wait until your Social Security-mandated full retirement age (between 66 and 67, depending on when you were born), you’ll receive full benefits.  However, you can receive reduced benefits as early as age 62---or you can wait as late as age 70 to enjoy increased benefits. 

  1. Create a plan as your retirement road map.  Put together a financial plan that gives you a road map that will guide you throughout all of your retirement years.  Your plan should coordinate all sources of income, including drawing income in the most tax-efficient way.  It needs to include individual retirement accounts (IRAs), 401(k) plans, pensions or any other financial asset like real estate and business assets.  Your plan needs to consider inflation (your cost of living can double in a 25-year retirement).  Further, all of your nest egg money needs to be invested in soundly allocated investment portfolios that consider the appropriate risk for you and tested to determine if your money will last you for all of your retirement years. 
  1. Factor your health into the decision. There are at least a couple of important reasons to factor your health into the decision about when you’ll retire.  First is the financial impact. Fidelity estimates that a 65-year-old couple retiring now will spend $245.000 on health care during a 20-year retirement (more if you enjoy a 25 or 30-year retirement).  And that doesn’t include long-term care expenses, which can be enormous. 

If you retire before age 65, your healthcare expenses will be even higher.  That’s because you’ll probably have to pay for health insurance totally on your own unless your employer provides coverage for retirees.  At age 65, you can enroll in Medicare – for now, though there’s a possibility that the Medicare age could be gradually raised over time to help.  Keep the program solvent. 

Second, you may be forced to retire earlier than you’d like because of health issues.  An Employee Benefit Research Institute (EBRI) survey found that 46% of retirees in 2016 retired earlier than expected.  Over half of those individuals retired early due to health problems or disability.  Even if you don’t currently have health problems, delaying retirement for too long could be problematic if your job takes a toll on your body. 

Conclusion 

So what’s the perfect retirement age for you?  Thinking about it and planning your ideal retirement lifestyle, your financial resources and your current and future health will help you determine when you should---and when you shouldn’t---begin your retirement stage of your life.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Sources: U.C. Berkeley study, Merrill Lynch, Employee Benefit Research Institute, Social Security, and Fidelity.

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Blog No. 110 --  What is The Best Age to Retire?