Retirement tends to occupy a growing percentage of our thoughts as we approach age 65. But just because you reach a particular age does not mean you should automatically retire. Some people may feel the urge to call it quits earlier, realizing they have been at the work grind long enough. Others feel happiest engaged and interacting with co-workers on the job. The right age to retire can differ for each of us, depending on our particular situation. Important considerations include whether we can afford to retire, if our job will still be there should we wish to continue, how our health is holding up, whether we are bored with our career and what aspirations we have for additional accomplishments and adventures in the future.
While retirement ages have been rising recently, 50% of people retiring earlier than expected, with an average gap of approximately three years. Therefore, given the significant percentage of people who are retiring early, it’s important to know who is most at risk of retiring earlier than expected.
Retiring early can wreak havoc on a retirement plan. It gives you one less year to save, one less year for your assets to grow, one more year to fund retirement, and will likely mean you’ll have to claim Social Security benefits one year earlier.
The impact for those planning to retire after age 61 was especially pronounced, where people tended to retire about a half-year early for each year after 61 they planned to retire. So, someone who thought she would retire at age 69 actually stopped working at age 65 (69 – 61 = 8 x 0.5 = 4, 69 – 4 = 65).
Lots of things can cause you to retire early–health problems, downsizing, having to care for a spouse or other family member, etc. Most of these things are difficult, if not impossible, to predict beforehand. Therefore, given the significant negative impact retiring early can have on your standard of living in retirement, it’s worth considering a few pre-emptive moves:
- Be realistic about your timetable. Don’t just pick an age for planning purposes because it means you can save less.
- Save more than you think you need to. Saving more–say 12% of your income, instead of 10%–will come in handy if you do end up retiring early.
- Create a “what if” plan. When running any kind of retirement projection, do an additional “what if” projection that incorporates retiring two or three years early. Then, ask yourself how financially secure you’d feel going forward if this came to pass.
Signs you are ready to retire early
- You’re emotionally ready to quit working.
- You can live on your retirement budget.
- You have reliable health insurance. Medicare doesn’t kick in until age 65 and health insurance costs are rising faster than inflation, it’s important to have a reliable, consistent source of health insurance.
- Your children are financially independent.
- Your debts are (nearly) paid off.
- Your portfolio can withstand losses.
Financial advisors say how much you need to put away depends on the kind of lifestyle you want in retirement. A general rule of thumb is that you’ll need to replace 70% to 80% of your pre-retirement income to have a similar standard of living when you retire. So if you earn $100,000 a year, you’ll need roughly $80,000 in annual income.
Just as no two people live the same lifestyle with the same income, no two people will retire in exactly the same way. One couple might be perfectly comfortable with a retirement annual income of only $20,000. However, a single person might just as easily need triple that.
What’s the difference? It’s all about what you want. Here’s how to sort it out and get started on your path toward retiring with the lifestyle you want.
Ref. bankrate.com, MSN/money
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