This story originally appeared on NewRetirement.
Retirement age is a concept that means very different things to different people.
Retirement age can be when you start Social Security (usually between ages 62 and 70), when you stop working, when you qualify for Medicare (65), or when you have achieved financial freedom.
In general, you should not retire until you have a really strong financial plan in place for the rest of your life. Unless by retirement you just mean joining AARP or getting a senior discount.
The U.S. Federal Reserve Bank reports that “More than one-fourth of adults in 2019 considered themselves to be retired, even though some also reported that they were still working in some capacity.”
That’s a lot of people, and some of the number is due to the fact that we are living longer. The average life expectancy for Americans as of 2019 is 78.5 years.
The reality is that determining when you can retire is not about averages. When you can retire is a highly personalized decision.
And, it is not always all about the money. In fact, finances don’t actually have a whole lot to do with retirement decisions. Nonfinancial factors have more influence.
Here’s what you should know about the financial and nonfinancial factors that will influence when you can retire.
1. When to retire? It’s not always about how much money you have
You might be surprised by who is working the longest. Finances don’t actually have a whole lot to do with retirement decisions compared to nonfinancial factors, recent research shows.
- The folks who are more likely to be working throughout their seniority are those with the highest incomes, greatest wealth, and most education, according to a study from the Center for Retirement Research at Boston College.
- Conversely, those who are not prepared for retirement are also likely to stay in the workforce longer, partly due to necessity.
2. Longevity trends: should they impact when you retire?
Americans are living longer than ever before. A longer life means that you need to be able to pay for more years in retirement.
One of the most difficult aspects of retirement planning and figuring out “when can I retire” is knowing how long you will live.
According to the Hamilton Project, the probability of living longer has grown significantly.
A 65-year-old man in 2015 had a:
- 90% chance of living to 70 (up 9 percentage points from 1965)
- 62% chance of living to 80 (up 21 percentage points from 1965)
- 22% chance of living to 90 (up 12 percentage points from 1965)
And, women live even longer. A 65-year-old woman in 2015 had a:
- 93% chance of living to 70 (up 3 percentage points from 1965)
- 71% chance of living to 80 (up 11 percentage points from 1965)
- 34% chance of living to 90 (up 9 percentage points from 1965)
The NewRetirement planner helps you assess when to retire. The system allows you to set your own longevity. You can try different scenarios to see if you will run out of money or not.
3. Are you too dazzled by the allure of retirement?
If you spend your days dreaming about what it will be like to kick up your heels during the golden years, you might be more likely to retire sooner than some of your peers, at least by a couple of years, according to a CRRBC study.
The allure of retirement can influence some to leave the workforce early, even if there’s a cost to financial security.
Just don’t rush into retirement if you cannot afford it.
4. Have you calculated your income needs?
Many people think that they can retire when they have saved enough money. However, many financial advisers believe they should ask a different question.
The real question to ask is “how much income do I need in retirement?” Can I provide that income for my lifetime — no matter how long that will be?
Retirement income planning is a critical part of a secure retirement. According to at least one Nobel Prize winner, you will want to be able to:
- Guarantee adequate income to cover your mandatory expenses
- Create flexible income streams for maintaining the lifestyle you would like to live
- Plan for being able to afford items on your “nice to have” list
There are numerous strategies for achieving secure retirement income — annuities, TIPS, and more. Learn more about retirement income here.
5. Have you considered transitioning to retirement instead of choosing one specific date?
You should shift your focus beyond when you should retire. Perhaps you should ask what you want to do with your time and if you need to retire to do that.
In AARP’s survey, Staying Ahead of the Curve, older workers indicated essential elements of their ideal job:
- Adequate paid time off (76%)
- A flexible schedule (72%)
- The opportunity to gradually phase into retirement (53%)
Options for transitioning to retirement might include:
- Retiring from your current job and figuring out how to earn money in a career that would be rewarding to you
- Taking a job — even a relatively low-paying job — in the field of leisure you most enjoy
- Working from home part of the time
- Cutting your hours at work and pursuing your passions now while still earning a paycheck
- Possibly taking a year off of work as a retirement trial
Your job can also influence your retirement decisions. As you age, you might have the option to reduce your hours and continue working for years in a part-time capacity.
People are more likely to continue working into old age when offered job flexibility. Seniors are more likely to retire fully from jobs that do not offer a reduction in working hours.
If your current job is not ideal for you as you age, it does not necessarily mean the end of work.
More and more people are leaving their job, but are finding work that they enjoy to bridge them to a full-time retirement. There are really a lot of benefits to continued work — especially if you enjoy it.
6. Are you aware of the many benefits of work?
Did you know that scientists have strong evidence that suggests that work keeps you happy and healthy? There are many benefits of work.
Work can give you a place to go every day which helps keep you feeling young and vibrant.
A job gives you social opportunities and mental challenges which keep your brain functioning. Working gives your life a purpose, which actually helps prevent aging.
7. How does health factor into figuring out when to retire?
Unsurprisingly, health is one of the top factors that affects retirement decisions.
When you’re planning your retirement, you might have some idea of the age at which you’d like to close up shop for the last time.
However, health can get in the way of those plans. Some may have to retire sooner than originally planned from an abrupt change in health. You’re more likely to retire with poorer health.
Thirty-five percent of people between the ages of 55 and 59 claim poor health for their reason to retire. This is according to a study by the National Institute on Aging.
If you are retiring early due to health issues, you should still use a reliable retirement planner to help you assess your budget.
8. Do you need health coverage from your employer?
Health care is often the most expensive and unpredictable cost to plan for in retirement. In the event of any unexpected health issues, health insurance could protect you from incurring potentially high out-of-pocket costs.
Many retirees rely on Medicare for their health coverage. Those who retire before age 65 may not be eligible to begin receiving benefits.
Finding affordable health insurance can be difficult for people who lose group coverage provided by an employer.
Working longer to continue benefiting from employer health coverage is a common reason investors choose to delay retirement, says Ken Sutherland. He is president of LifePlan Group, a fee-based financial advisory firm in Raleigh, North Carolina.
This strategy is also popular among more than half of American workers.
They say they plan to work longer to maintain access to their current employer-sponsored health plans, according to the Employee Benefit Research Institute.
9. Have you seriously evaluated your projected health care costs?
It may seem that if you have seriously considered health care costs, then you might not ever be able to retire.
The expected out-of-pocket health care spending for an average couple in retirement is estimated to far exceed the average savings of those households, reports the Center for Retirement Research.
According to a 2013 report by AARP, only a small percentage of adults ages 50-64 are confident they will be able to afford health care costs in retirement.
Of those who have thought about these costs, “only 52% are confident they can afford the costs” and “less than 16% are very confident that they can afford the costs of healthcare in retirement.”
And these numbers assume retirement at 65 when Medicare supplements your spending. It is even more expensive if you retire at 62 and have to fund your own health care.
Are there any affordable solutions? Maintaining good health is certainly essential. Supplemental insurance, annuities, and other financial strategies may give you a secure retirement.
10. When to retire? Have you calculated potential family needs?
Many of us who are around retirement age are members of the sandwich generation.
Members of the sandwich generation have both dependent children as well as elderly parents. Both may require emotional and financial care.
AARP’s The Work and Career Study reported statistics on caregiving by older workers.
The study found that 58% of those ages 45-74 say they are responsible for caring for someone they know, such as a parent, child, spouse or friend.
This figure rises to 66% of those ages 45-56.
If you are a member of the sandwich generation, then you need to calculate the future costs of supporting your children and your parents.
Costs can include college and weddings for your children and health care for your parents.
11. Have you met with a financial adviser?
The best person to ask “When can I retire?” is probably a professional. You only get one chance to completely retire, and it is not something you can afford to get wrong.
Meeting with a financial adviser about when you can comfortably retire can give you peace of mind.
Choosing a retirement date is like solving a very complicated puzzle. There are lots of unknowns, trade-offs and complex financial math.
Many people do it on their own, but financial advisers can help you optimize and explore options.
12. How about a ‘practice retirement’?
Pre-retirees transitioning into retirement often have two choices. You can:
- Retire early with insufficient savings
- Delay retirement to work longer and shore up your financial cushion
There is, however, another option pre-retirees should consider.
If investors in their early 60s decide to continue working but discontinue making contributions to their retirement plans, they can begin fulfilling some of their retirement dreams sooner.
This concept of a “practicing retirement” strategy can provide more discretionary income during pre-retirees’ transition years.
This allows them to seriously pursue their retirement aspirations well before they thought they could, says Christine Fahlund, a senior financial planner for T. Rowe Price.
“And by continuing to work and delay receiving Social Security benefits, you are positioning yourself to have potentially higher payments — adjusted annually for inflation — for the rest of your life,” Fahlund says. “This strategy can be much more positive for those in transition.”
Depending on your financial position, it may make sense to avoid tapping your retirement nest egg and delay Social Security benefits while continuing to work.
But this approach may not be a particularly good fit for everyone.
13. Do you have a detailed and personalized financial plan?
Of course, you do need to consider all the financial factors to enjoy those golden years.
Even if you have not saved enough, there are still ways to achieve a secure retirement.
Your savings are just one of the many levers that determine a good retirement plan.
Other factors are more important:
- How much you spend
- How much you earn in Social Security or pensions
- Where you live
- Health care spending
A good retirement calculator can help you assess these factors.
Whether you are retiring because you think you have saved enough money, because of health concerns, or you just can’t wait to live the life you have always dreamed of, you should create a solid retirement plan.
14. Do you know what you want to do next?
When you ask yourself, “when I retire,” are you trying to get away from something or to something?
A study from Merrill Lynch found that 9 out of 10 boomers see retirement as an opportunity for a new beginning — not an end of something. Retiring to something can be critical to your retirement happiness.
It is even better if what you choose to do in retirement is meaningful. Research from Oxford University finds that a meaningful life lessens the effects of aging.
In fact, people with a sense of purpose had a 15% lower risk of death, compared with those who said they were more or less aimless. And it didn’t seem to matter when people found their direction.
It could be in their 20s, 50s, or 70s — even when controlled for other factors that affect longevity like age, gender and emotional well-being.
The study found that a sense of purpose led to a longer life.
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