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 As workers approach their peak earning years many begin to think about questions like "When is the best time to retire?" We hear stories all the time about people living longer - which is good news. For those of you that are still thinking about retiring at age 62, you need to figure out if your retirement plans are taking this new information into account.
Deciding when to retire is a very difficult decision for many of us. In this article we're going to look at three distinct timeframes for retiring, and examine the pros and cons of each decision. We'll also talk about some of the planning tools that are available to help you figure out how to create a retirement plan that allows you to live comfortably in retirement.
Right Time to Retire
Figuring out the right time to retire is not an easy decision. We could make detailed retirement plans and work those plans hard for 20 years only to fall victim to health problems that might cut our retirement years short. We're going to take a more upbeat approach to retiring and start out with a very simple assumption - we're all going to live a full and rewarding life in retirement - so let's figure out what's the right time to retire.
Three Retirement Timeframes
There are no hard and fast rules that define retirement. But we can all agree retirement is the withdrawal from a traditional place of employment. Many people also view these years as an opportunity to semi-retire, and that usually means working in a more rewarding job - usually out of choice and not necessity.
With that as a background there are generally three well-accepted timeframes in which to retire:
- Early Retirement
- Retiring "On Time"
- Late Retirement
In the following sections we're going to discuss the advantages and disadvantages of each approach.
Retiring Early
One of the ways we can try to place boundaries around the early, on-time, and late retirement timeframes is by using Social Security retirement benefits as a guide. With that in mind we're going to define early retirement as retiring before age 62. For many of us that will mean retiring from work between the ages of 55 and 62.
Pros and Cons of Retiring Early
The biggest benefit of retiring early is that it provides you with more time to pursue and enjoy the "fruits of your labor." Even at age 55 many of us will have worked hard for 30 or more years. It's nice to be able to enjoy ourselves after spending all of that time in the workplace.
Unfortunately there is a big downside of retiring early - but it certainly not impossible as we see people around us retire early all the time. If you go this route, then you need to consider the following:
- Retiring early means having less time to accumulate retirement benefits - so you will need to save more each year to make this a reality.
- Income will have to last longer if you retire early. For example if you retire at age 55 instead of 65, then you'll need ten more years of retirement income.
- Pensions and Social Security may not be available right away. Even if you have a pension plan at work, your employer may restrict or reduce benefits before what they consider "normal" retirement age. In addition Social Security benefits will not be available until age 62, and if you start collecting benefits right away, then they will also be reduced.
- Finally, if you retire early, then you'll need to find and pay for health insurance until you qualify for Medicare.
Pros and Cons of Retiring "On Time"
We're going to define "normal" or "traditional" retirement age as those years 62 and 67. In general, these are the years when you will qualify for early or full Social Security benefits. Most employees also seem to use the age of 62 as a guide for normal retirement age.
Perhaps the biggest benefit of retiring on time is that it allows you plenty of time to enjoy a healthy and fulfilling retirement. Other benefits of retiring on time include:
- More time to create a substantial retirement fund. Putting money aside for retirement will be less painful as you watch the power of compounding interest grow your funds.
- Paying for the expense of health care insurance is no longer a concern as you'll qualify for Medicare right away.
- By retiring in a more traditional timeframe you'll usually qualify for un-reduced pension benefits and Social Security.
On the downside, retiring on time means you'll have less time to pursue a potentially rewarding second career.
Retiring Later in Life
For many of us remaining in the workplace past age 67 is a choice we will make because we simply enjoy what we do for a living. We will view maintaining a productive role in our companies and the daily interactions with our co-workers as a benefit that's hard to resist.
The biggest advantage of retiring late in life is that we've got more time to save for retirement coupled with fewer years over which we need retirement income. For example if you decide to retire at age 70 instead of age 65 then you've got five more years to save money and five fewer years that you're using retirement income.
Other benefits of retiring late include:
- Immediately qualifying for Medicare - although you might want to consider signing up at age 65.
- By retiring late you'll also continue to build up your pension plan, and in some cases qualify for higher Social Security benefits.
The down side of retiring later in life is simply that you'll have fewer retirement years. So you'll want take into consideration "quality of life" issues if you decide to go this route.
Retirement Planning Tools
We're going to finish this article up by running through some of the tools we've got to help create viable retirement plans. Some of articles we've got on this topic include:
Online Retirement Calculators
We've also a complete set of online retirement calculators that can help you create a retirement plan as well as figure out if your current plan is going to meet your objectives.
Some of the retirement calculators on this topic include:
Remember, retiring from work is a very personal matter. It's a decision that can have a long and lasting affect on your lifestyle - so it's important to balance the pros and cons of the decision using all the information and tools you can get your hands on.
About the Author - Best Time to Retire
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