When is the Right Time to Retire?
When are you going to retire? You might have some inclination to when that may be. Typically there is some type of anchor tied to that date. Maybe it’s when you can receive your full Social Security benefit without any reductions, or maybe it is when you become eligible for a pension, if you are lucky enough to have one in the first place. With the rise of 401(k) s and the fall of Pensions, retiring at age 65 is becoming more of a tradition than a necessity. Despite that, almost half of all baby boomers retire fully by age 65 and one out of three 65 year-olds who have not yet retired, plan to do so as soon as they become eligible for their Social Security “Full Retirement Age” benefit.*
Social Security and retirement however are not linked, you can have one without the other. It’s important to remember that if you defer taking your benefit past what Social Security has deemed you’re “Full Retirement Age” you can grow your benefit by 8% per year, not counting any cost of living adjustments that can be tacked on as well.
When choosing when to retire, you should look at a number of factors, including financial preparedness, health, and job satisfaction. For those who end up working past their planned retirement date, the main contributing factors are the need for extra income to cover daily expenses and a desire to stay active. Planning can help ensure that these needs are met and you are financially and emotionally ready to step away from your career.
Envisioning retirement can be a difficult task. If you are planning on cutting back in retirement and spending less, it might be a good idea to go on a trial run and implement your planned budget while you are still working. Even if you do plan ahead, life can get in the way. Sometimes people are forced into an earlier retirement than planned. Health is the biggest contributor to an unplanned early retirement. Almost 40% of those who retire earlier than planned, do so because of health issues or disability. When we combine those who were forced into early retirement for health reasons with those who lost their job or job opportunities, over half of boomers surveyed end up retiring earlier than they expected.*
This is why when planning it’s important to look at worst case scenarios and have contingency plans in place. Remember that it’s always better to hope for the best and plan for the worst when it comes to retirement.
*Transitioning into Retirement: The MetLife Study of Baby Boomers at 65. (Cover story). (2012). Pension Benefits, 21(6), 1-2.
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