Many dream of the day they can tell the boss that they are retiring—the day when you’re done clocking in with the 9 to 5 routine, free to finally pursue your own interests and hobbies. Once you have figured out how much you actually need to retire, the next step is to determine the best time to start the next phase of your life.
The reality is that retirement planning is different for each person. Some methodically plan well in advance, with a specific retirement age in mind. Others can face unexpected life events such as a retirement buyout package from a company looking to trim costs or, on the other side of the coin, an illness or other occurrence that cuts short your working years. Flexibility and a willingness to work with life events as they evolve may be an important factor to include in your retirement goals.
The Timing Checklist
As you determine the right time to retire for you, it’s important to ask yourself a series of questions. "The most significant determining factors for retirement are your health and your wealth," says Cary Carbonaro, managing director at United Capital.
Carbonaro offers 12 questions you can use to evaluate your personal situation:
- Do you have a pension?
- Do you have a company sponsored retirement plan or an IRA?
- When will you take Social Security?
- Will you downsize your home?
- How much do you expect to spend each month in retirement?
- How will you continue to invest during your retirement?
- Are you ready?
- Is your spouse ready?
- Will you stay in the same state?
- Will you move close to family?
- Will you move in with family?
- Do you have health insurance?
Depending on your age, some Americans are eligible to file for Social Security benefits as early as age 62. But that may not be to your benefit. If you can delay taking Social Security until your full retirement age or beyond, you can qualify for a significantly larger benefit amount throughout your life. "If you got a late start in saving for retirement, you will likely not be able to retire early and should not take reduced Social Security at 62. From full retirement age to age 70, your benefit enjoys an 8% per year increase," Carbonaro says.
Health-care costs are considered to be a wild card in retirement, and there have been proposals to change how medical care entitlements are awarded to seniors in America. Proposals include privatizing Medicare and replacing it with vouchers that individuals could use to help pay for coverage through private insurers.
"Healthcare costs in retirement are currently projected at $250,000 per person from retirement to death with the assistance of Medicare," Carbonaro says.
Get Help from a Professional
If you need to have surgery or your car needs a new transmission, these are not likely things you would tackle on your own. When it comes to picking the ideal time to retire, there are a multitude of factors to consider. Carbonaro says to consider working with a Certified Financial Planner or other personal finance professional to learn whether or not you will outlive your money.
"You need to know you have a retirement budget that will be balanced. You might also consider working with a counselor to help you sift through the emotions and fully embrace that you are emotionally ready for this step," Carbonaro adds.
Have Fun Planning Your Next Act
Beyond the financial nuts and bolts, take the time to daydream about how you will spend your time. Anecdotal evidence suggests that those who shift into the retirement phase with a solid plan of how they will spend their time enjoy more vibrant and fulfilling senior years.
"I have seen people who hate their jobs and count the days, months, and years until retirement. I've also seen people who love what they do and don't feel like they're actually working. You will know the right time for you, or maybe it will take until act two or act three in life to find your passion or whatever makes you happy," Carbonaro concludes.
Regardless of your age, saving for retirement should be an important priority in your overall financial plan. How much do you need to save to reach your retirement savings goal?