When Should You Retire?

Quick Answer: Discover the best age to retire with our expert insights. Plan your dream retirement today with SafeMoney's trusted resources.

Like most of us, chances are years ago you imagined the ideal age you would stop working and start living your dream retirement. A new study reveals that the answer to “what’s the optimal retirement age” depends on the age of the person you ask.

Bankrate.com surveyed Americans of different generations. While each had its own idea of the ideal retirement age, on average those surveyed believe the best age to retire to be 61.

Gen Xers and Millennials chose 61 and 60, respectively, as their ideal ages. Baby boomers (ages 64-72) and the silent generation (age 73+), possibly making a more seasoned estimate of the optimal retirement age, chose age 64 to 65.

Everyone wants to retire comfortably, especially after years of hard work. But age forecasting isn’t necessarily the best way to approach this. Just-as-critical questions to ask (if not more so) are: “What income do I want to retire at?” and “What financial resources will I need to enjoy my preferred lifestyle?”

Match Your Income to Your Outgo 

No one wants to face financial surprises in retirement, when it’s often too late to change course. So, where should you start?

For a first step, financial professionals encourage their clients to begin the planning process by putting their numbers to paper. Some suggestions:

• Plot out your current spending habits, month to month, and use them as a guide to what your spending patterns in the future might be.
• Don’t forget to include your unique retirement goals. Living abroad? Traveling to distant destinations? Doting on grandchildren and other loved ones? Indulging in hobbies? Volunteering in your community?
• Determine what income sources you’ll be relying on in retirement, from pensions to your nest egg to Social Security.
• Then compare that income with your projected retirement spending to see if you’ll be generating enough income to support your new lifestyle.

What Will Spending Be in Retirement?

According to the Employee Benefits Research Institute, the common belief that you will spend less during retirement than while working may be a false assumption. Institute data shows that approximately half of all seniors spend more.

“In the first two years of retirement, 45.9 percent of households spent more than what they had spent just before retirement. This declined to 33.4 percent by the sixth year of retirement,” the study reported.

Interestingly, EBRI research shows that households that spent more in the first two years of retirement were not exclusively high-income households; but were distributed similarly across income levels.

Drilling Down to Your Expenses: Simple Solutions

Fixed expenses are, well, fixed. So you know these are constants you will be paying every month.

Yes, those expenses will gradually rise with inflation. But putting them all down on paper is the first step to understanding your baseline needs and ensuring you will have the income to keep paying for them once you retire.

Experts suggest reviewing your bank account and credit card statements to see where your money has been going, then grouping expenses, starting with these fixed expenses:

• Essentials:  food, clothing, housing, transportation, and healthcare.
• Non-essential monthly obligations: cable TV, gym memberships, subscriptions.
• Required non-monthly expenses: annual expenses such as property taxes, insurance premiums and auto registration, etc. Add them up and divide by 12 to prepare your monthly retirement budget.

If you make a monthly January to December spreadsheet, remember that the holiday months require spending on gifts. So, add amounts to those months that reflect your history of holiday spending.

Don’t forget about the price tags of any of your unique retirement dreams, too!

Don’t Forget Healthcare Expenses

If you retire before the Medicare eligible age of 65, you will have to budget for your own insurance premiums. TheBalance.com reports that between the ages of 60 and 65, health insurance premiums could run you $1,000 a month.

If you start researching plans now you can add this monthly expense estimate to your budget. That figure alone could influence when you choose to retire.

And, of course, there are dental, eye care, and hearing expenses to consider. Put it all in your budget so you can accurately seek income sources that will support these necessities.

How Much Might Healthcare Be?

When it comes to cumulative healthcare spending in retirement — insurance and all — you may have heard of some staggering statistics there. One recent study pegs health costs as annual expenses tied to personal health status, insurance coverage choices, retirement age, and the loss of any benefits from no longer working.

Vanguard forecasts that a typical woman would pay $5,200 in annual health expenses in her first year. Afterward, expenses would gradually rise with inflation.

Cumulatively over a 24-year expected lifespan, Vanguard estimates, she could easily pay $200,000 in out-of-pocket health expenses. A typical man turning 65 his first year and going from there could shell out about 2% less, due to slightly shorter life expectancy.

Other healthcare projections come with higher bills. Fidelity estimated that in 2017, the price tag of lifetime retirement health costs for a couple turning 65 could top $275,000. And that is without factoring in the potential for long-term care expenses, which can tip the scales all on their own.

Planning Your Way to an Income-Secure Retirement

Working with a financial professional you can project your income during retirement.

If that projection isn’t sufficient to meet the needs you have outlined, it’s time to investigate your options. Carefully consider your choices for generating greater income by stepping up savings and seeking opportunities for compounding the growth of your nest egg. Make sure your plan maximizes your spendable income net of fees, net of inflation, and net of taxes.

It’s a fact of life that we just might need greater income at a time when we are no longer working.

Ready for Retirement Income Guidance?

Spending the time now to research and evaluate your needs versus your assets and projected income will do more than cut down on guesswork. It will put you on the path to retiring at exactly the right time for you. If you are ready to start preparing, financial professionals at SafeMoney.com can help you.

Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

Frequently Asked Questions About when should you retire

What is the best age to retire for financial security?

The best age to retire largely depends on your financial situation, health, and lifestyle goals. Many experts suggest that retiring between 65 and 70 can provide a balance of maximizing Social Security benefits while allowing for adequate savings growth. It's important to assess your income sources, expenses, and any potential healthcare costs to determine the most secure age for your retirement.

How can I determine if I'm financially ready to retire?

To determine if you're financially ready to retire, evaluate your savings, income streams, and anticipated expenses. Create a detailed budget that includes healthcare, housing, and leisure activities to understand your financial needs. Additionally, consider consulting with a retirement planner who can help you analyze your assets, including fixed annuities and other safe money alternatives, to ensure you have a solid plan in place.

What are the pros and cons of retiring early?

Retiring early can provide more leisure time and the opportunity to pursue personal interests, but it also comes with financial risks. You'll need to consider how early retirement impacts your savings, Social Security benefits, and healthcare costs. Additionally, relying on safe money alternatives can help mitigate some risks, but it's crucial to ensure you have enough funds to support your lifestyle throughout retirement.

How does delaying retirement affect my Social Security benefits?

Delaying retirement can significantly increase your Social Security benefits, as they grow by about 8% for each year you wait past your full retirement age. This can provide a larger monthly income, which is particularly beneficial if you plan to rely on Social Security as a primary income source. It's essential to weigh the benefits of increased payouts against your personal circumstances and needs when deciding when to retire.

Take the next step, run the numbers with our free retirement calculators.