When should you retire? Is it 60? Or 62 when you first become eligible for Social Security?. Or when you first become eligible for Medicare? Or is it when you reach full retirement age, the age at which you’ll 100% of what you owed by Social Security. What about age 70, the age when you can get the most Social Security? How about age 72, the year when you have to take required minimum distributions from your retirement accounts?
It’s a tough question. “I wish it was as simple as picking the full retirement date on your Social Security statement, but there is so much more to consider,” said Stephanie Bruno, a certified financial planner with Sea to Peak Financial Advisors.
Others agree. “There is no perfect answer to when is the right age to retire,” said Bryan Hodgens, a senior vice president with LPL Financial. “A lot of factors play into it.”
What are some of those factors?
Can You FIRE?
FIRE stands for the Financial Independence, Retire Early movement. Sometimes retirement isn’t tied to an age but the point at which you have financial independence, said Anthea Perkinson, the founder of Monterey Associates.
“Recently I have begun advising younger clients -- in their late 30s to mid 40s -- mostly in highly compensated careers, that they should embrace ‘financial freedom’ as a financial goal rather than traditional retirement,” said Perkinson. “I urge them to save and invest at rates that would allow them to stop working between age 50 and 55 because that is when people are most vulnerable to career disruption -- whether from industry changes or consolidation or bad luck. They don't have to quit at that age but if they are forced out they don't have to worry if they can't replace that former level of income.”
For many older Americans, age 60, if not the age at which they retire, is the age at which serious planning should start, said Perkinson.
“If I am lucky, I get the request for planning help from people who are approaching age 60 so that I can build a roadmap to the end -- through all of the critical ages,” she said. Years of higher retirement plan contribution limits, Medicare coverage elections, Social Security elections, and tax planning before and after they stop working. Sometimes just organizing their financial information and presenting them with a clear picture of where they are and where they are headed allows them to select a retirement age.”
In the movie One Flew Over the Cuckoo’s Nest, the character Pete Bancini keeps repeating the phrase, “I'm tired.”
Well, that’s how it is for many people who retire, regardless of their age. They just up and quit.
“Often what gets people thinking about retirement is that they are tired at working long hours in a high-stress environment,” said Bruno. “They may enjoy some aspects of their work but want more personal time. Others are ready to step away fully as soon as they can.”
How’s Your Health?
Several factors should be considered about the right age to retire, and health is probably the No. 1 one question to answer, said Hodgens.
For instance, if you’re in poor health you might consider taking Social Security early, he said.
If, however, you’re in good health try to wait until your full retirement age before claiming Social Security and retiring, Hodgens said. Claiming Social Security at age 62 may result in a reduction of as much as 30%. Read Early or Late Retirement?.
Do you have a pension? If you have a traditional defined benefit pension, the age at which you’re eligible for the highest possible benefits becomes the age at which you retire.
It's been my observation that people who are covered by traditional pensions seem to operate with internal "countdown clocks" tied to the age they first become eligible to retire with full or only slightly reduced pension benefits,” said Perkinson. “Although some people want to continue working past that age, the majority lock onto that date as though the decision has been made for them.”
With some pensions, Perkinson said workers can reach the years of service needed to retire at a really young age -- police and firemen, for example. “But if they only have the pension income and no other assets, they may end up going back to work to keep up with expenses and to fill their time with purposeful activity,” she said.
Are you eligible for Medicare? For the vast majority of older workers, who are not covered by defined benefit plans, the milestone age of 65 and Medicare eligibility seems to trigger the retirement reflex -- whether or not they have accumulated sufficient assets, are paying off debt or are continuing to support kids or elderly parents, said Perkinson.
A Phased Retirement
Consider a phased retirement. Maybe instead of quitting work cold turkey, you might consider a phased retirement. Inch into it.
“When we consider what is the right age to retire, we must first consider, what does retirement mean to each of us,” said Bruno.
Does it mean not working at all or not working at the current level of work? “If someone retires at 65, they can literally be retired for another 30-35 years,” she said. “Given this many people are choosing to work less than full out retire.”
Many are still sharp and have a lot to offer in their 70s, said Bruno, noting that the current president is 78.
Don’t Think Age, Think Ideal Life
For her part, Bruno said retiring is less about “the age” and more about quality of life. She recommends that people consider what their ideal life might look like whether working, in retirement, or some combination of both. “They should consider what social relationships they will have in place once they are no longer working,” she said.
Where will they want to live? What will be their purposeful work even if volunteering, gardening or playing pickleball? How will they take care of their health?
“From there they should estimate what this life might cost on an annual basis,” she said. “They should also include potential additional costs like long-term care and whether they want to leave assets to heirs,” said Bruno.
Got long-term care? Long-term care is perhaps the biggest question to consider, said Hodgens. “It’s estimated that 70% of American’s will need some long-term care or end-of-life care,” he said. “One may have to work longer to save more knowing they are in good health and have longevity in their family and will need additional funds to cover long-term care needs down the road.”
Get Good Help
A good adviser could then help them understand if their current resources and their savings plan will likely grow enough to cover those costs for the rest of their lives, said Bruno. “If not, there then needs to be an adjustment from the ideal retirement or the would-be retiree may need to work longer or perhaps part-time in retirement,” she said. “In some cases, the person may already have more than enough.”