How much money is enough? How much is more than enough? When you should retire ? Determining when to draw the line in the sand may very well depend on the shifting tide of economic factors, including any retirement packages you may be entitled to. Weigh the options against your outstanding debts to help with the decision process. If a mortgage, tuition or other expenses have got you juggling bills and paychecks, you may want to delay retirement, especially if it means a reduction in income. Remember to factor in the costs of regular travel and entertainment, since retirement should include a healthy dose of fun and adventure.
Consider the advantages of working a few more years to level your financial playing field while adding more to your wealth portfolio in the process. If you’re in line for a well over-due promotion, don’t pass on it because you’re close to retirement. In fact, lobby for the promotion and make sure you activate the retirement package to maximize insurance coverage and long-term benefits, such as profit-sharing. Insurance costs and deductibles are minimal while you’re on the payroll, whereas, they can add a huge monthly expense to your balance sheet if Medicare hasn’t kicked in yet. Dwell on the benefits of working through most of your sixth decade as you clear old debts and prepare for a financially secure retirement.
If you decide to draw Social Security benefits while still working, you may be able to earn around $15,000 per calendar year while collecting Social Security without losing any benefits. An article by Forbes shares insights about the “break-even” age – the age you have to live to in order to justify waiting to collect a bigger check. The article suggests considering that your break-even age depends on the discount rate you apply when valuing future benefits. (The higher the discount rate, the longer it takes for you to break even by deferring benefits) For example, by using a 2% real discount rate, waiting until 66, instead of taking benefits at 62, pays off if you live until around 80; using a 4% rate you must live until 84.
Visit the Social Security website to register online and use their benefits estimator to get an overview of projected monthly benefits beginning at the age of 62. Consider the financial benefits of waiting until you reach the age of 65, or if you are still willing and able to work, delay receiving benefits until the age of 70 to maximize your monthly benefit. Study the guidelines of Social Security to determine how benefits affect your bottom line now and in the future. You can receive your maximum benefit at age 70, but can begin as early as the age of 62.
A retirement plan overhaul could be the pivotal point of change for future retirees and has been discussed off and on, as a national directive and is being promoted by Retirement USA , along with other organizations, since the Social Security trust fund is expected to be depleted by 2037. The proposal includes several robust initiatives, including:
- Universal coverage for every worker
- A secure retirement with a guaranteed stream of income
- Adequate retirement income for life
- Shared responsibility for the cost between employers, employees and government
- Contributions should be pooled and professionally managed
- No payouts until retirement for any reason except permanent disability
- Guaranteed lifetime payouts for workers, spouses and partners
- Portability of benefits that allows workers to move their accounts between employers
- Optional additional voluntary contributions by workers.
- Efficient and transparent administration and management of funds
It’s encouraging to know there are some watchdogs with muscle behind the initiatives that can affect real change in the coming years and give us all a better shot at covering the cost of living longer. I encourage you to stay up-to-date on changes within the system that can affect your plan, for better or worse.
When deciding whether you are ready to retire, examine the inner workings of your typical work week and ask yourself a few key questions, such as:
- Could the stress of a working life be deadly in its own way? For some the answer would be “yes,” but research suggests that too little stress might also be a killer. While some retirees live active, healthy lives, peppering their days with tennis matches and volunteer work, others languish in front of the television. The everyday routine of getting up, going to work, interacting with colleagues, and striving for professional goals can keep people more physically and mentally fit than a quiet, yet dull retirement. (Continuing to make money also doesn’t hurt.)
- Do you have a reason to quit working? Let’s face it. Most everyone envisions the day they don’t have to punch a time clock or answer to the rigors and demanding schedule of a dedicated, life-long career. Perhaps you are looking forward to just kicking back without answering to anyone. But are you prepared to kick back for 30, or even 40 years? Take the time to consider your long-term goals before retirement to help set the course from the very beginning for a more fulfilling retirement. Don’t waste your well-earned days, weeks and years on a sedentary lifestyle. To the victor go the spoils, which includes living an independent and active life.
A strategy that you may want to adapt is to work longer to live healthier, and with good reason. A comprehensive study in the UK revealed that early retirement could increase the likely onset of depression and other diseases. “There should be no ‘normal’ retirement age in the future,” Edward Datnow, chairman of the Age Endeavor Fellowship in the UK, was quoted as saying in a UK publication of “The Independent.” The study claims that remaining actively employed should be a government-endorsed initiative because it increases the quality of life for most people.
Consider a more nuts-and-bolts approach when deciding on when you are ready to retire. Use an online retirement planning calculator to determine how close you are to your financial goals. What’s interesting about these types of estimators is the fact that they only extend to the age of 90. People are living longer now – sometimes 20 or 30 years longer than their parents, and that leaves some lacking the extra savings necessary to support the extra years.
When discussing your financial future with an advisor, let them know you want the numbers to extend to your 100th year. It will inspire you to continue planning ahead for the magic number.
If you know how much money you need in the bank to comfortably retire, you’re in the minority: “Only 1 in 10 people have bothered to make the calculation,” according to the Transamerica Center for Retirement Studies. That might explain why, on average, Americans are on track to replace 60 percent or less of their income during retirement. Financial advisers generally agree that retirees need to replace 80 percent or more. Luckily, most Boomers will receive a huge to moderate transfer of wealth through inheritance, since USA Today reports that 2 out of 3 Boomers will inherit around $64,000.00 from their parents one day.
In the big picture, pay close attention to the small details, such as health care costs, that can sabotage the best-laid retirement plans. If you are relishing a future that doesn’t include daily commutes or too many late nights at the office, be sure you’ve done the math to make it a permanent transition. If the numbers don’t add up, consider delaying the start of your golden years until they do and also factor in the unknown element – such as a long-term illness. (Also Read about Tips to jump start your Retirement)