Many workers strive to work to a specific age, but what is the best time for you? As you get closer to the traditional retirement age range, you may be thinking, is there a “best age” to retire? The answer of course is not simple and depends on YOU, your unique personal situation, and your financial position.
For starters we need to understand what “ready” might look like to you. Does that mean you have achieved a certain amount of savings? Are you at an age where you can access Medicare or Social Security? Will you and your spouse retire together?
I like to consider two different areas of life to determine retirement readiness, financial and emotional. Just because you’re emotionally ready to retire does not mean you are financially prepared. At the same time, just because you are financially prepared to retired doesn’t mean you are emotionally ready. Having the financial means to retire is important because it provides freedom. The freedom the financial means provides can support your purpose and goals.
Most people regret working too much. Rarely do people regret spending more time with their family and friends. Understanding what is most important to you will pay off, this is easier said than done. Retiring doesn’t automatically make you happier.
As you approach retirement taking note of what makes you happy will be worth noting. These are the things that you should strive to spend your time and money doing. For example, if being on vacation with your children and grandchildren brings you joy, creating a plan so this can continue for the next 20 to 30 years will help you maximize your life. Regardless, you need to have a plan for what you’re retiring to, not what you’re retiring from. If you have a clearer image of what you want retirement to look like, it makes the switch much easier.
The amount you need to be financially prepared to retire will be different than your neighbor, brother, sister, and friends. How prepared you are is derived from your estimated expenses, which can change over time, but estimating your outflows is a good place to start. I like to think of these expenses in three separate categories; needs, wants, and wishes.
Think of your needs as expenses that are non-negotiable. These expenses include things like insurance premiums, property taxes, mortgage and car payments, food, and utility costs.
Moving on to the next category of expenses are your wants and wishes. This relates back to the emotional part of retiring. After meeting with hundreds of retiring families, I rarely run into anyone who is retiring to do nothing. So, if you retired to spend more time golfing or traveling with your loved ones, it costs money. You want to make sure when you are planning your retirement that you consider what these “wants” cost, and keep in mind that everyday is Saturday.
The last category of expenses I refer to as your wishes. These are typically more ambitious goals you are trying to accomplish. For example, these “wishes” may be to leave money to a charity, help support your grandchildren’s higher education expenses, or leave a legacy to your loved ones.
Once you understand where you plan on using your hard-earned savings, you should have a financial strategy to optimize it. This includes tax, income, estate, and healthcare. Understanding when income will be at its highest (and lowest) can create opportunities for things like Roth conversions. Which can potentially reduce the amount of taxes you pay throughout your lifetime.
While there is one-size-fits-all age to retire the common answer I get to “when would you like to retire” is 65. There is some financial significance to retiring at 65. At 65 years old you can access Medicare. As we age healthcare becomes top of mind and having cost effective healthcare is very important. This certainly does not mean that everyone should work until 65 “just” to have access to Medicare.
If you are financially prepared to retire before 65 years old, then you can make alternative plans to waiting until Medicare is available to you. If you are retiring before age 65 you have options for healthcare and how much it cost might depend on where you live and how much income you have annually.
People today think of retirement very different than their parents. The previous generation worked at the same company for 30 years. After those 30 years they received their proverbial golden watch and a pension to help replace their income. This generation typically retired for good and did not continue to seek other opportunities. Today, it is commonplace for retirees, to entertain part time work and consulting gigs after they formally retire. I commonly refer to this style of retirement as “work optional”. Perhaps you like what you do but hate that you are chained to the desk or 9-5 schedule. If you have the ability, I see “retirees” find a lot of joy in working limited hours on their schedule so long as it gives them the ability to live the life they want to live.
One of the biggest traps I see professionals fall into is “just one more year”. I have seen countless examples of workers who were supposed to scale back or retire and are asked to stay on for just one more year. Many times, one year turns to two, two becomes three, and before they know it their golden years are behind them. That’s why it is so important to have a good understanding of what it means to you to be financially ready to retire. It gives YOU the freedom to live life on your terms.
While there is no crystal ball that can predict what life, markets, or the world will look like in 5 years. Having a sound strategy to get you to where you want to be is a great place to start. There is no way of knowing how long you’ll live or what your health will be throughout the latter part of life. The goal is to strike a balance between living for today and preparing for tomorrow. The “best age to retire” has a lot more to do with you than your finances.
Working with a professional who has been trained and has experience implementing strategies for retirees can have massive benefits. A financial planner can provide perspective, look at optimal strategies, and balance your life with your finances. It may sound like tooting my own horn, but whether you work with Independence Wealth, or another professional, an experienced, designated professional can have both tangible and intangible benefits.
Assisting families to have more fulfilling retirements is what we do.