By Chris Connelly, Novus Advisors
Deciding when to retire may not be one decision but a series of decisions and calculations. For example, you’ll need to estimate not only your anticipated expenses but also what sources of retirement income you’ll have and how long you’ll need your retirement savings to last. You’ll need to take into account your life expectancy and health as well as when you want to start receiving Social Security or pension benefits, and when you’ll start to tap your retirement savings. Each of these factors may affect the others as part of an overall retirement income plan.
Thinking about early retirement?
Retiring early means fewer earning years and less accumulated savings. Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. And your retirement could last quite a while. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago.
Current Life Expectancy Estimates
| Men | Women | |
| At birth | 74.2 | 79.9 |
| At age 65 | 82 | 84.8 |
Source: NCHS Data Brief, Number 427, December 2021
There are other considerations as well. For example, if you expect to receive pension payments, early retirement may adversely affect them. Why? Because the greatest accrual of benefits generally occurs during your final years of employment, when your earning power is presumably highest. Early retirement could reduce your monthly benefits. It will affect your Social Security benefits, too.
Finally, you’re not eligible for Medicare until you turn 65. Unless you’ll be eligible for retiree health benefits through your employer or take a job that offers health insurance, you’ll need to calculate the cost of paying for insurance or health care out-of-pocket, at least until you can receive Medicare coverage.
Delaying retirement
Postponing retirement lets you continue to add to your retirement savings. That’s especially advantageous if you’re saving in tax-deferred accounts and if you’re receiving employer contributions.
Phased retirement: the best of both worlds
Some employers have begun to offer phased retirement programs, which allow you to receive all or part of your pension benefit once you’ve reached retirement age while you continue to work part-time for the same employer.
Key Decision Points
| Age | Don’t forget … | |
| Eligible to tap tax-deferred savings without penalty for early withdrawal | 59½* | Federal income taxes will be due on pre-tax contributions and earnings |
| Eligible for early Social Security benefits | 62 | Taking benefits before full retirement age reduces each monthly payment |
| Eligible for Medicare | 65 | Contact Medicare three months before your 65th birthday |
| Full retirement age for Social Security | 66 to 67,
depending on when you were born |
After full retirement age, earned income no longer affects Social Security benefits |
*Age 55 for distributions from employer plans upon termination of employment
Check your assumptions
The sooner you start to plan the timing of your retirement, the more time you’ll have to make adjustments that can help ensure those years are everything you hope for. If you’ve already made some tentative assumptions or choices, you may need to revisit them, especially if you’re considering taking retirement in stages. And as you move into retirement, you’ll want to monitor your retirement income plan to ensure that your initial assumptions are still valid, that new laws and regulations haven’t affected your situation, and that your savings and investments are performing as you need them to.
IMPORTANT DISCLOSURES: This material has been prepared solely for informative purposes. The information contained herein includes information that has been obtained from third party sources and has not been independently verified. It is made available on an “as is” basis without warranty.
