By Sometimes the question of when to retire is easy. Your occupation has a mandatory retirement date, or your pension kicks in after a specific number of years. Most of the time, though, it’s up in the air. Maybe you’re waiting to draw Social Security, or until you’ve saved towards a certain number, or when you’re age-eligible for Medicare. There’s no one-size-fits-all.
Regardless of what brings you to the conversation about retirement, the first thing I always ask clients is, what is your “why”? Are you looking to cash in on your healthier years to travel and take in activities that you enjoy? Are you looking to be closer to family, or taking care of an ailing spouse or relative? Are you just so sick of your job and those younger folks at the office (HA!) that you can’t bear the thought of another five years in the office?
Finding your “why” is a crucial starting point to figuring out exactly what it’s going to take to set yourself up for a successful retirement. It will impact a whole host of decisions that you need to make in the meantime to prepare for life after a paycheck.
That being said, here are several other factors that you’ll want to consider when choosing the best retirement date for you.
Have I saved enough to retire early, or do I need to rely on Social Security and/or a part-time job?
We’ve had several good years in the market, so everybody’s retirement savings should look better than they did at the end of 2022. But if you’re retiring at the end of 2025 and your savings are a bit short, we’ll ask you to save a little more this year and boost up those accounts. We’ll look at cash flow, options for a solid withdrawal strategy, Social Security eligibility, or any other pension benefits.
While every pension plan’s benefit options are plan-dependent, you can start drawing Social Security at age 62, or wait and maximize your benefit at 70. At 65, you’re eligible for Medicare, so if you would like to retire before then, we can help you look into private health insurance plans.
What will my retirement lifestyle be?
You may picture your retirement as a quiet one spent on a fishing boat in the middle of a lake. Or maybe you have your sights set on jetting around the world, checking its great landmarks one by one off your bucket list. One question we always ask people is, on the first day after you stop working, what are your activities and interests going to look like? Are you going to stay where you are or move to a warmer climate? Who will your friends / social network be?
In retirement, some lifestyle expenses are fixed, like utilities, cable, groceries, and home insurance. But your true lifestyle expenses will change when every day is a Saturday. You may be a little more active, travel more, spend more on activities, and spoil your grandkids. It’s ok!
As you go from having your assets in growth mode to what we like to term growth AND income mode, it makes sense to sit down with your financial advisor and review your portfolio asset allocation to determine if any changes need to be made considering your need for your portfolio to provide you with income for the rest of retirement.
Where will I live?
The question of where you’ll retire to is a huge factor in your financial picture. Some states have no income tax, while other states tax Social Security benefits and pensions. States differ in estate taxes, insurance, cost of living, and much more. You might be counting on reinvesting money from downsizing your home, but smaller, well-built ranches or townhomes in desirable areas often go for the same if not more than a five-bedroom McMansion in the suburbs these days.
We need to make sure we have a conversation about all of this, from tax implications for your investment withdrawals to updating your legal documents as appropriate.
How long will I live?
Believe it or not, I’ve had clients looking to retire at 62 who have told me, “I won’t make 82, so I’d like a plan that spends every penny.” But I’m not doing my job if I don’t help you plan adequately for a long retirement. The goal of our plans is to provide income until you reach 90 years old, if not 100. If it looks like you’ll be broke at 82, my advice would be to keep at it. Keep working, keep saving, and keep paying down any debt. I had an advisor once tell me that the longer your clients work, the less stress they’ll have in retirement. Read that again. I’ve seen firsthand how so many clients truly enjoy their professional calling, even if over the years they scale back the hours to create a better-balanced life.
Lastly, ask yourself if your cash flow leaves room for those life things that occur, whether it’s healthcare, home repairs, or helping aging family members. We want to make sure we account for those possible events. This is the best way to ensure that you can live the retirement that you’ve dreamed of without financial worry.
Hopefully, these factors have given you some food for thought. I know it is a lot to consider. I can’t stress enough how helpful it is to work with a financial team of professionals who will help you work through all of these scenarios. If you’re starting to look at retirement, reach out to us today and let our team take some of that worry off of your hands.
Article by David Smyth, Senior Partner and Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.