The Optimal Retirement Age

Ray’s Take Most of us say we want to do it – retire, that is. Given that, how do we find that perfect time to do it? Retirement at the optimal age isn’t something to be left to chance; it is something that needs to be a rational decision that takes into consideration a variety of variables. Financial variables include how much income you’ll be receiving from all sources and factoring in life expectancy and health issues. Emotional variables include considering that your spouse may have taken you for better or worse, but not for lunch.

Choosing the right retirement age is a trade-off between time and money. The traditional retirement age of 65 was chosen when most people didn’t live much past 70, so clearly the math has changed.

Many people would like to retire early but are unsure if they can afford to. Numerous retirement-planning events are triggered at specific ages, such as when you can begin drawing on Social Security or when you are required to take IRA distributions. These need to be factored into your decision along with health insurance options. Consider if retiring early leaves a gap in health insurance coverage.

A harsh reality of the globally competitive world in which we live is that the notion of lifetime employment is increasingly unlikely. Employment, like retirement, will be considered in phases. An “all or none” approach to either one won’t be an option for more and more people. Most people will need to consider working longer to accumulate additional funds for the extended life expectancies we are enjoying.

Finding the right balance is hard. Careers and skill sets will need to evolve. Retirement plans will be like the flight plan for Apollo 13 – scrapped and rewritten as conditions change. Meeting with a financial planner to discuss your options is a good step in the right direction, then buckle up!

Dana’s Take Assuming steady employment with your current employer until the age you choose may be wishful thinking. Ray and I have a college-educated friend who was laid off from his job at age 50. Was that his financial plan? Not even close. 

Saving more into an emergency fund and maxing out retirement savings while fully employed might pay off big if blindsided by an employment gap. 

One area where most of us could cut costs is in extravagant spending on our kids and teens. If your teen’s not working, particularly in the summer, your emergency fund needs that money more than your teen needs to work on his tan. (When did travel “experiences” replace cutting yards in the summer?) 

Include contingencies for employment gaps in your retirement plan. Then, if all goes well, retire early and splurge a little. 

Financial Freedom
Target-Date Funds and Taxes