We spend a great deal of time helping clients decide the best time to retire. Retirement is no longer age-dependent for most of us. We are free to work as long as we like, assuming our health is good. That opens up a lot of possibilities!
Although many people retire early to start a life of leisure, more and more are choosing to “retire” to try a different kind of job or to work part-time. For those lucky enough to have a traditional pension, having a base income can provide the freedom to quit a current job and do something more enjoyable.
Pension or not, the high cost of medical insurance should be taken into consideration retiring early. Medicare coverage isn’t available until age 65, so you’ll need to sign up for a retiree health plan or budget for private insurance. Many people are surprised by the high cost of health insurance (it can be $600-$1,000/mo each), especially if they had employer-provided coverage before.
Early retirement also requires some thought to cash flow planning – where will your monthly income come from until age 59 ½, until Social Security starts, or until your pension begins? And if you think you can live on less money than you do now, you may want to test that theory before you actually retire.
If you are concerned about outliving your assets, or if you love your job, you may want to wait until closer to age 70 to retire. There are many benefits in working longer: you’ll have longer to build up your nest egg (resulting in a potentially higher retirement income), you’ll get to keep company benefits for a longer time (insurance, 401k plan, flexible spending plans, etc.), and Social Security will pay you a premium above what you would receive at your full retirement age.
The downside to retiring later is that no one knows how long they’ll live. You may have other things you would like to do with your time, so you might get short-changed on your flexible or leisure time. One way to deal with that possibility is to do the fun things you really want to do whether you’re working or not.
If you’ve never really thought about what you’d do in retirement, try making a list of all the things you might like to do. After that, see how many things on your list could be done right now with a little more flexibility in your work schedule. Some people prefer to ease into retirement by scheduling longer and more frequent vacations from their current jobs, giving them a chance to experience doing other activities and “practice” how they’ll spend their post-work years.
There is no blueprint or best choice – it’s a highly individualized decision based on many variables. With careful planning, “retirement” can be a time when you live a more fulfilling life – no matter what your age.