When can you retire? It depends ― on how old you are; how much you have saved; the extent to which you’ll rely on Social Security, a pension, or tax-advantaged retirement accounts; how your investments perform; the kind of lifestyle you want in retirement; and how long you’ll live.
Factors to Consider When Setting a Target Retirement Age
1. What kind of lifestyle do you want in retirement? Given the same monthly savings rate, there is a tradeoff between when you can retire and the kind of lifestyle you can have once you do. For example, if you’re currently 50 years old, earn $50,000 per year, and plan to live to age 90, for about the same monthly savings amount, you can retire at age 65 with 50% of your preretirement income or at age 70 with 100% of your preretirement income (Source: Kiplinger Retirement Savings Calculator). There’s no right or wrong answer here, it’s simply a tradeoff you’ll have to make.
2. What does Social Security consider to be your full retirement age? The government will allow you to start receiving Social Security benefits at age 62, but those benefits will be less than what you’d receive if you waited until your full retirement age. For example, for an individual born in 1960 or later who retires at age 62 instead of age 67 (full retirement age), monthly benefits will be reduced by 30%. For individuals born before 1960, full retirement age ranges from 65 to 66 and 10 months, and the reduction in benefits for retiring at age 62 ranges from 20% to 29.17%.
Of course, if you’re not counting on Social Security for retirement income, then you can retire whenever you want and wait until your full retirement age to start taking Social Security benefits.
3. What do your pension plan and other retirement plans consider to be full retirement age? Like Social Security, most pension plans have a certain minimum age at which they will begin paying benefits (at a reduced rate) and a certain age at which you become eligible to start receiving full benefits. Similarly, tax-advantaged retirement plans, like 401(k) plans and IRAs, penalize distributions (except in certain circumstances) before age 59½.
Important to note: While most people focus on the earliest age at which they can retire, it’s also important to understand when you may be required to start taking retirement benefits or distributions from retirement accounts. 401)k)s and 403(b)s require minimum distributions beginning at age 70½ (unless you’re still working, in most cases), as do traditional IRAs.
If you would like to retire at age 62 but the math just isn’t working out, you might consider partial retirement. By continuing to generate income even after you’ve left the workplace, you can retire earlier than if you’re not generating any income at all.
Ways to Partially Retire
- Work part-time. Working part-time, either at your current job or another one, is one way to continue generating income while still having more time to pursue the retirement activities you’ve been looking forward to. Some people enjoy working a few hours every day, a couple of days a week, or even just a few months out of the year, depending on what the job is.
- Consult. You’ve likely spent many decades honing your skills in a particular job or industry. And while some employers might be wary of hiring older workers full time, they’re often eager to tap the expertise of older workers on a contract basis. So consulting can be a good way to continue earning income while also freeing up time to golf, play with the grandchildren, and whatever else you’ve been putting off for retirement.
- Sell your wares. If you plan to do craft-related activities in retirement anyway, why not consider selling your wares? Online craft sites make selling homemade items relatively easy. If you join a local craft-making group, you could find the activity both financially and socially rewarding.
Please call if you’d like to discuss this in more detail.
Copyright © Integrated Concepts 2012. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.