Retirement is a big decision, and when to retire is different for everyone. You can start to receive certain retirement benefits once you reach your 62nd birthday. Delaying your retirement, however, will cause those benefits to increase over time.
On average, men typically retire at 64, while women usually retire around 62. And what do you do once you officially retire? Anything you wish, whether that means traveling, learning new skills or hobbies, spending time with loved ones, volunteering, etc. It’s all up to you. Based on information gathered by the National Bureau of Economic Research, research shows retiring improves one’s overall health and quality of life.
There are advantages and disadvantages to retiring at certain ages. Read on as we examine them in greater detail.
Things to consider when choosing an age to retire
One: What type of lifestyle would you like to live once you're out of the workforce?
Two: How much money will you need on a monthly and annual basis to live comfortably?
Three: What is your current retirement savings rate? Every retirement plan is different, so understanding how much money you can save during each pay period is essential.
Four: How long do you anticipate living in retirement? Retiring earlier has its perks, but it means you need to build up more wealth in a shorter amount of time, which can be difficult.
Five: What will your tax situation be once you've retired?
Six: What will your sources of income be, such as Social Security payouts, a 401k plan, government pensions, etc.?
Seven: At what age does your spouse plan to retire?
What's considered an early retirement?
Retiring before the age of 65 is considered early retirement. Technically, there is no minimum threshold of when you can retire. You can do so at 65, 64, or even as young as 40. Up until 1983, 65 was the normal retirement age, after which Congress passed a law that raised the threshold because of improving health rates and longer life expectancies nationwide. These days, people are living longer. Therefore, they are working longer, too.
Early retirement will allow you to collect benefits for a longer period of time, but those benefits will also decrease because you'll be spreading them out over this longer stretch of time. Essentially, you'll receive more checks for a more extended period. Your spouse will still receive their benefits, but there will also be less by default.
Unfortunately, few people have the appropriate amount of savings to retire early.
What’s considered normal retirement?
Presently, retiring between the ages of 66 and 70 is considered normal. Some even refer to it as the "golden range" of retirement, as by this point, you'll ideally have saved enough money to live on, but you'll still likely be young enough to enjoy life to its fullest. It is crucial to keep in mind that there is no "best age to retire." It is all dependent on your personal circumstances.
Once you reach 65, you are eligible for Medicare coverage, so retiring at this age will allow you to access the benefits of the federal healthcare system. Also, you will begin receiving complete Social Security payments once you hit 66.
What’s considered late retirement?
Retiring after 70 years of age is considered late retirement. Nevertheless, research shows that working more helps individuals remain happy and healthy. Those who love their work may wish to keep their job for as long as they physically can.
Additionally, the longer you postpone your retirement, the longer your savings will be able to accumulate interest from the bank, and the same applies to any investments you’ve made. You will receive the maximum amount in Social Security payments as well.
Currently, four out of five Americans have less than a year’s income saved for their retirement. Financial instability and one’s health are two significant factors regarding many people’s decision to delay retiring from their jobs.
Key ages to keep in mind
Remember, there is no magic number when it comes to the best age to retire. The choice of when to retire rests in your court, but there are still milestones you should be aware of as you begin to plan.
Age 50: If you retire at 50, you are permitted to make “catch-up contributions” into your retirement accounts. As a result, you also qualify for certain tax breaks.
Age 59 ½: If applicable, you can start making withdrawals from your 401k account without worrying about paying penalties for doing so early.
Age 62: Eligibility for collecting Social Security payments begins.
Age 65: Known as the “normal retirement age,” you also qualify for Medicare coverage.
Age 66: If you were born between 1946 and 1964, you fall into the baby boomer category and are eligible for full Social Security payments.
Age 67: Younger generations, meaning those born in 1965 and after, can collect full Social Security payments.
Age 70: Social Security payments increase by eight percent every year that you wait to retire after age 70. Additionally, you are required to start collecting minimum distribution payments from your government pension.
4 tips for retirement planning
Planning for retirement is a process that takes time to sort out. Above all else, you need to accumulate sufficient savings to support yourself once you no longer have a steady salary. Before you plan, it's wise to outline the goals you wish to accomplish in this upcoming chapter of life.
Tip 1: Create a budget. A common fear people have about retirement is that they will outlive their money. Monitoring your investments, savings, spending, and tax rates before retiring will provide you with invaluable insight into your financial habits. Remember, the goal is to stick to your budget as closely as possible. Otherwise, there is no point in making one.
Tip 2: Pay off your debts. Outstanding loans do not disappear when you retire. The number of elderly individuals who still have mortgages, student loans, and credit card debt has rapidly increased over the last few years. It is easiest to pay off your debts while still working because you have continual cash flow.
Tip 3: Prioritize your health. Keeping healthy both physically and mentally is highly beneficial now and in the future, as you'll spend less of your savings on high healthcare costs. Too many people overlook this and are unprepared for unexpected medical emergencies.
Tip 4: Meet with a financial advisor. If you are unsure where to start, talking with an expert is a failsafe way to inform yourself about financially preparing for retirement.
Retirement can seem like a distant reality, but it approaches sooner than you may think. Exercising money-wise habits, like controlled spending, taking precautions against financial fraud, and acquiring lower interest rates early on will only benefit you once you do decide to retire.
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