When is the Best Time to Retire
Retirement is one of the biggest decisions you can make in your life, so the decision of when to do it is all the more important. Depending on how much money you have and how much you're saving, retiring is going to be different according to different phases of your life. The process becomes a balancing act of how much money you have saved, what Social Security benefits you qualify for, and how soon you'd like to get rid of your work shoes. Here are some of the things you should know about retiring and when you should do.
Remember that it's important to save up for retirement as soon as possible! Whether you're reading this at age 55 or 15, the more you save up, the sooner you can retire. And the more money you have when you retire, the more comfortably you can live. Many financial experts recommend that you save ten to fifteen percent of your income in a savings account or retirement fund of some sort. It pays off (literally) to take the time to consider your current age, when you want to retire, your annual income, and how much you want to save. There are plenty of online calculators, like this one, that will help you get on track.
For example, if you're currently 45 years old, making $60,000 per year and have $50,000 saved for retirement, you'll have to start saving at least 19% of your income in order to make retirement by age 70. The younger you are, the better. It's best to start young and save more so you can live a comfortable retirement when the time is right. But when do you know the time is right, anyway? That depends on what you want.
It's recommended that you start buckling down on retirement planning at least 5 years before you plan to officially retire. Depending on your age, you'll have different options available to you when you retire regarding government incentives like Social Security and Medicare.
- 59 1/2 - This is when you can access your retirement accounts with no penalty.
- 62 - This is the average age because you can start collecting Social Security benefits.
- 65 - This is the age that Medicare benefits begin.
- 70 - This is when your Social Security bonus stops adding to itself.
Some experts recommend that you hold off retiring for as long as you can because when you wait longer, your benefits Social Security benefits will be greater. When you delay collecting Social Security after you qualify, there is an 8 percent gain annually. However, if you've always been the kind to pinch your pennies and buy only the essentials, that may not be as big of a challenge for you.
You should also know that there are some benefits depending on what time of the year you retire. Here are some examples as explained by Jason Silverberg of Financial Advantage Associates:
- The first day after the anniversary of your hiring - This is for government workers and others with a defined pension. If you retire the day after an anniversary marking your first day on a job, it will give you another full year of service credit toward pension calculation.
- The very beginning or end of the year - If you don't have access to a healthy cash reserve that could cover multiple years, this might be a good option. When you do this, you're not pulling money out of your retirement account when you could be put in a higher tax bracket with earned income.
- When you can avoid a required minimum distribution - If you work a few days into the new year, you don't have to make the usual minimum distribution on your retirement account.
- After you've turned 70 - After you turn 70, you're eligible for 100 percent of your Social Security benefits. As mentioned before, this is the year that your bonus stops accumulating.
- When you can take full advantage of Social Security benefits - Before your 66th birthday, Social Security will withhold $1 of benefits for every $2 earned about the amount you claim.
Budget is Everything
Make sure you fully understand how much money you'll spend each year. You'll want to plan out how much money you'll spend on the necessities like food and medical expenses, but also if you plan on taking exotic vacations or treating yourself to other specialties. In terms of medical expenses, a 65-year-old couple needs approximately $240,000 to cover insurance premiums, according to retirement expert Bud Hebeler. As you get older, it would also be wise to consider a medical alert system in case you experience a fall or other emergency. Top medical alert companies can be found here.
Some potential retirees plan on working part time to keep themselves busy. This can be a good thing if you think you'd get easily tired of shooting golf and playing bridge, but part time work isn't something you should lean upon if you think you'll have insufficient funds. Some professionals recommend sticking out a full-time job for as long as you can so the need to work full-time is virtually non-existent. One or two years at your full-time job could easily substitute five years of part-time work.
It's also important to consider where you're going to live. If you've got a house that's all paid off at this point, you're in great shape, but maybe you'll want to downsize if you're living alone or just with your spouse. Selling your home for a duplex or a town home will give you more money to contribute to your retirement fund, and living in a smaller space saves energy.
What you've read is just a handful of recommendations. For more help regarding your specific situation, budget, and lifestyle, contact a trusted financial advisor or retirement planner. These professionals can give you tailored advice to your lifestyle and budget.