Certain individuals inherently find pleasure in refining and perfecting various aspects of their life. One may wonder, can the date of retirement be subjected to this optimization process?
Various scenarios come into play when deciding upon retirement. They could be forcibly retired, may have chosen to retire by a certain age regardless of the circumstances, or could be uncertain about the ideal age for retirement and the indicators for reaching that age.
This comprehensive write-up from NextGen-Wealth delves deeper into determining the ideal retirement age, alongside some guiding principles to recognize the arrival of that period.
There might be numerous instances in life when one could consider retiring, but the pivotal question remains – what is the ideal age for them? This question looms larger as retirement nears, and the answer depends largely on their individual personal and financial circumstances.
Defining retirement is no easy task. Would anyone have been able to predict their current life situation five years prior? Unlikely.
How does one determine what it means to be “ready” for retirement? Could it be a certain level of expenses, availability of Medicare or Social Security benefits, or a specific timing in alignment with a spouse or family member?
Significant shifts in lifestyle and income can lead to stark contrasts between expected retirement and actual retirement. To manage this, two primary categories of readiness can be identified – financial and emotional. Being emotionally prepared doesn’t necessarily mean one is financially prepared, hence the importance of a meticulously planned retirement strategy.
Wealth extends beyond the mere accumulation of money. It provides choices and freedom, empowering individuals to invest in anything that aligns with their values, purposes, and goals. One must learn more about crafting their affluent life.
Like it was mentioned earlier, one cannot retire without being financially prepared. Therefore, one’s current income should gradually transition to retirement income.
The money required for retirement is largely dictated by estimated retirement expenses and other sources of income. These expenses fluctuate over time, but a reasonable estimate can be made based on current expenses.
Expenses that are absolutely necessary to cover are housing, healthcare, food, and utilities. Though some of these expenses could be reduced, the basics are necessary for survival. These non-negotiable expenses can be estimated fairly easily based on current expenditure, with a rule of thumb often being 80% of current expenses. However, several variables, such as when the house will be paid off, dependent children, travel, etc., come into play.
Reducing expenses could yield more after-tax income than adding additional income, but it’s a challenging task, particularly if one is accustomed to a certain standard of living. While making extra money is taxed, cutting expenses is not.
One of the major expenses that can be reduced is a mortgage. Having a mortgage-free house alleviates financial stress, though property taxes, utilities, and maintenance still need to be covered. Whether one chooses to pay off their house early depends on mathematical calculations and personal considerations, both of which will influence how much retirement income is needed.
In terms of income, nothing is guaranteed, but some income streams offer more stability. For example, the exact amount of Social Security may not be guaranteed, but barring significant legislative changes, Social Security benefits are expected to be paid out in full until 2035, with reduced benefits thereafter.
Living a bare-minimum retirement isn’t the expectation. One has toiled throughout their life, and they deserve to enjoy the fruits of their labor. Without proper planning, funds might deplete, which isn’t ideal.
A holistic approach to developing income streams is suggested to cover all goals, not just the minimum. This is one of the initial steps taken in the COLLAB Financial Planning Process™. The objective is not just survival, but a comfortable and fulfilling retirement. If current income sources are insufficient, changes might be necessary.
One of the most beneficial aspects of financial planning is the potential for tax savings or optimizing retirement income. Engaging with a professional who is trained and experienced in identifying and implementing advanced strategies can be beneficial. A financial planner has the ability to view the broader picture, identify mathematically optimal strategies, and balance those with lifestyle choices.
Developing additional sources of income for retirement is necessary if reducing expenses and employing tax or financial planning strategies don’t cover retirement needs. This will vary from person to person and may not be an option for everyone. If additional income can be generated from real estate or retirement contributions can be increased, it might be sufficient.
If all else fails, it may be necessary to adjust some goals. This may not be a pleasant exercise, but could be essential. Small changes made over the course of retirement could have a larger impact than bigger, one-time changes.
Emotional preparedness for retirement is another crucial factor. People often regret not spending enough time with their families. Understanding what matters most and planning accordingly can be extremely beneficial. One must remember that retirement is about what they’re moving towards, not just what they’re moving away from.
Age is just a number. There’s nothing magical about 65, and one doesn’t have to plan their entire life around ages tied to Medicare and Social Security. If one is financially prepared, decisions can be made that prioritize joy and not just survival.
If they’re in a job they love or can switch to one they love, retirement might not even be that enticing. Reaching the age of full retirement doesn’t mean they must retire, or at least not fully. Some might discover that working part-time while spending the rest of their time with friends and family is more rewarding.
Working “just one more year” is a common sentiment, but it’s vital to consider what’s being sacrificed. Death rates increase substantially after age 55. Therefore, having a plan and deciding both emotionally and financially when one will be ready to retire is crucial.
Ultimately, the objective should be to make the most of every minute of life. The overall picture is incredibly important. An additional couple of years at work may be worth it for a vacation home, provided it doesn’t cause extra stress or deteriorate health. Though it’s impossible to predict longevity or health throughout retirement, a balance between living in the moment and preparing for tomorrow must be struck. The ideal age to retire depends more on the individual than their money.