Deciding when to retire is a critical decision. Take the time to do it right.
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If you’re in your late 50s or 60s, deciding when and how to retire is one of the most important decisions you’ll make at this point in your life. Your decisions will not only impact your financial security but your quality of life for the rest of your life.
There are a number of financial and lifestyle considerations you’ll likely have to take into account. This post describes a handful of perspectives to help you think through these issues.
Financial enablers and barriers
There are a few “go/no-go” financial factors you’ll want to consider.
First, you’ll want to determine if your retirement income from all sources will cover your basic and discretionary living expenses. Sources of retirement income can include Social Security, systematic withdrawals from retirement savings, and pensions, if applicable. Estimate the total retirement income you’d be able to generate at a few possible retirement ages so you can see how your retirement income might increase if you delay retirement for just a few years.
If your estimated retirement income won’t cover all your estimated living expenses at the age at which you’d like to retire, you’ll need to consider working longer, reducing your living expenses, deploying your home equity, or doing some combination of these three strategies.
Another potential challenge is finding affordable health insurance. Many pre-retirees hope to work until they’re eligible for Medicare at age 65, when health care becomes more affordable for most retirees. If you’re planning to retire before age 65, you’ll want to determine how and where you’ll obtain health insurance and what it will cost.
Reasons for retiring
It’s important to seriously consider the factors that may be influencing when you want to retire. Some factors might “push” you into retirement. For example, you might be in poor health, you might work in a stressful environment, or you might simply be tired of working at the job you currently have and are looking for a change.
On the other hand, there can be factors that “pull” you into retirement. You might want more freedom to pursue activities you enjoy more than work. You might have specific goals or activities that you can only pursue if you’re retired, such as travel or hobbies or maybe you want to get actively involved in charitable causes.
There are sometimes a variety of factors that will affect your decision to retire. If that’s the case, you’ll want to consider which of these factors are more of a priority for you.
Reasons for continuing to work
Some people may want or need to continue working past their desired retirement age. If that’s the case, it can be helpful to explore the reasons why.
For example, some factors might “push” you to continue working. You might need the income from working to support yourself or dependent children or aging parents, or you might need affordable health insurance.
On the other hand, some factors might “pull” you to keep working. You might find that your work is fulfilling, you have work goals that indicate “you’re not done yet,” or you enjoy the social engagement you get from working.
Once again, there could be more than one of these factors at play, so you might want to consider which of these factors are most relevant to you.
Be aware of triggers
You might have put a lot of thought into when you’d like to retire, then some trigger happens that makes you rethink your plans. Common triggers include attaining a milestone age, such as eligibility for Social Security at age 62, becoming eligible for Medicare at age 65, attaining your Social Security “full retirement age,” or reaching a benchmark age in your employer’s retirement plan.
The retirement of your spouse, partner, or close friends and family can also cause you to rethink your retirement plans. Or you might have an “I’m outta here” frustrating experience at work that makes you want to leave sooner rather than later. The birth of a grandchild or other life-changing event can also help accelerate your retirement.
In all these cases, try to avoid making a hasty decision that you later regret. Revisit your plans, think things through, and talk them over with people who are important to you, such as your spouse, partner, or close family and friends.
Be prepared to pivot for overrider events
No matter how much you plan ahead, life can override your carefully made plans. Examples of “overriding” events include a layoff or job loss, a major disruption at work such as a reorganization, a health shock, or a family disruption. In any of these cases, the retirement plan that you’ve already developed will make it easier to pivot to a “Plan B.”
Deciding when and how to retire can be a lot of work, but it’s well worth your time and attention. Often you won’t have a “do-over,” so you’ll want to do your best to cover all the bases at the outset.