Retirement Timing

Retirement Timing — Will You Be Early, On Time, or Late to Your Retirement Party?


Retirement Timing — Will You Be Early, On Time, or Late to Your Retirement Party?

A generation ago, the concept of retirement was pretty simple: stop working and start playing. Most people assumed they’d flip that switch around age 60. Today, retirement is being redefined by the Baby Boomers. It’s less about retiring from work and more about retiring to a new phase of life—one that promises to be equally or more enriching than the one that came before. And many people are choosing to make the transition either earlier or later than age 65.

The earlier you begin the planning process, the more flexibility you will have on the actual timing

First, try to imagine what your retirement will look like. With a good picture of your day to day life, you can begin to estimate what it might cost, how long it may last, and determine if you have enough money to support it. Start by creating a budget, then determine how much income you will have so you can understand if you can afford to retire early or if waiting might be a better option.

Does early retirement make sense?

The concept of early retirement appeals to many people, but the financial realities require some careful planning. Here are a few things to consider about taking early retirement:

  • Savings contributions stop — Retirement means transitioning from growing your savings to relying on your savings to generate income. A financial professional can help you understand exactly how much monthly income your nest egg will produce and for how many years.
  • Retirement may last longer — Even if you retire at 65, your retirement might last 20 years or more. If you retire earlier, that time horizon extends and your savings will need to last even longer. 
  • Guaranteed income may go down — If you start taking Social Security benefits before your full retirement age, your monthly amount will be reduced. The same may be true if you’re eligible for traditional pension benefits.
  • Retirement accounts have restrictions — If you need withdrawals from an IRA and are under age 59½, you may pay a 10% penalty in addition to regular income taxes. Employer plans, like a 401(k), let you take penalty free withdrawals as young as age 55 if you are retired.
  • Health insurance costs may go upMedicare starts at age 65, so if you don’t have retiree health benefits from your ex-employer, you may have to pay your own way for a number of years.

Or should you delay?

There are several advantages to delaying retirement:

  • Additional savings contributions — More money going into your retirement accounts provides the potential to build a larger nest egg.
  • Fewer withdrawal years — Delaying your retirement, by even a few years, decreases the risk that you may outlive your savings because you may take withdrawals over a shorter time span.
  • More planning time — If you’ve got big plans for retirement, like starting your own business or learning a new skill, postponing the start date gives you more time to get everything lined up.

Get an early start—on planning

Deciding when to retire requires lots of planning, a little math and a willingness to accept certain tradeoffs. The earlier you begin the planning process, the more flexibility you’ll have on the timing.