What is the best age to retire?

Dr. Daniel Crosby, Ph.D., President, IncBlot Behavioral Finance

You turn to your financial advisor for answers to a lot of questions. How can I diversify in today’s market? What’s the best asset allocation for my risk tolerance? Do I have enough saved for my retirement?
Your financial advisor is one of the few professionals that stays with you over a life-long time horizon. From your first child’s college savings plan, to your first glimpse at retirement, your advisor is in it for the long haul. With extended perspective on your life and savings, it seems logical that he or she would have a quick answer to the question What is the best age to retire? It’s easy to expect a black-and-white answer. After all, you’ve spent years, if not decades together, thoughtfully building a nest egg for your retirement. Your financial advisor can’t answer that question alone. A lot of it depends on you.
Selecting the best age for retirement should take many factors into account. Your perfect age will be based upon a combination of financial, health and lifestyle considerations. While your decision may begin with a review of your finances, it needs to be balanced with several factors.
Here are three to consider.
The best age to retire is…when you can maximize the benefits you plan to draw upon
Before you can retire, do you know your Social Security “full retirement age?” Do you know when you qualify for Medicare? Your financial maturity is best reflected in your understanding of the best time to cash in on these programs for the maximum benefit. The Social Security Administration defines full retirement age as a range from 65-67 years of age, depending on the year you were born. You can begin drawing benefits as late as age 70. Waiting until full retirement age or later allows you to capture the support owed to you under Social Security and any pensions without having to sacrifice deductions for early withdrawals. Medicare eligibility kicks in at age 65. Retiring prior to that age means you’ll need a solid plan for health coverage. Stay informed about Social Security regulation changes.
The best age to retire is …when your savings are adequate to support your desired lifestyle
It’s a cold hard fact…some of us need more time to save before we can retire. The size of your retirement savings account is influenced by how early you began saving, how much you contributed, market performance and how diligent you were over your working career. A well-planned retirement requires a detailed budget for your income and expenses. While most experts agree that you’ll need approximately 70% of your pre-retirement income to maintain your current lifestyle, that too depends on your diligence in maintaining a budget throughout retirement. When you delay retirement to a later age, you gain the opportunity to make up for savings gaps or to elevate your lifestyle.
Remember, perfect planning doesn’t mean you’ll have a perfect experience throughout retirement. Make sure your plan accounts for bumps along the road. A study by the Society of Actuaries detailed 16 different post-retirement risks ranging from financial issues (inflation, interest rates, and business continuity) to unexpected crises (healthcare expenses, loss of independence and change in marital status). With age comes wisdom, but retirees are not immune to risks related to bad advice, fraud or theft either.
The best age to retire is…when you have a healthy vision for your post-retirement life
Retirement isn’t a vacation. In fact, it’s a lot of hard work. Beyond the vacations and the new hobbies, most retirees discover they have more time on their hands than anticipated. Filling that time becomes a challenge, and the frustration is often exacerbated by an impatient spouse who finds the newly retired to be constantly underfoot. Retirees who leave highly visible and engaging careers tend to face emotional challenges too. Defining a post-retirement persona forces you to look beyond your professional experience for purpose and satisfaction. Finally, your ability to enjoy your retirement lifestyle is grounded in your health and wellness; consider retiring early if long-term health is a concern.
There is no best age to retire, but there are best practices to follow as you make that decision. You’re at the right age to retire when you have a solid plan to address these financial, social and health issues.

Source: “Managing Post-Retirement Risks: A Guide to Retirement Planning” The Society of Actuaries, 2011. www.soa.org

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