For many working Americans, the most important financial decision they will ever make is deciding when to retire.
Retirement age can vary greatly from one person to another. Obviously, very wealthy professionals, executives, business owners and others may have the means to retire comfortably whenever they’ve had enough of the daily grind.
But for the vast majority of working Americans, retirement is something that must be planned and paid for through a lifetime of saving and investing. Until you’ve saved sufficient assets to fund a viable retirement, your options are very limited.
There are a number of factors to consider in planning for your retirement. Whether you work through these issues on your own or with the help of a financial advisor, you need to give serious consideration to when and how you wish to retire.
Here are several questions you need to answer before you can set a retirement date:
How much money will you need each month to pay your bills? In some cases, you may be able to live on less than you did during your working years, but in my experience working with clients, I find that they often spend more in retirement because they have more leisure time. They may travel more and become involved in more outside activities. The other factor to keep in mind is inflation. The cost of living tends to double about every 25 years, so you’re going to need twice as much money to cover your expenses in 25 years than you need now.
How’s your health? If your health is declining, you may have no choice but to retire as soon as possible. But if your health is still good and you have the interest and energy to continue working, you might want to work beyond age 65—either full- or part-time. By working longer, you can use your earnings to live on rather than tap into your retirement savings, and can even add to that savings and give your investments more time to grow.
What is your family’s history of longevity? If your parents or most of your family has a history of living well beyond age 65, it will be important for you to build up an investment nest egg that can sustain you for two or three more decades. That may mean that you’ll have to work well into your sixties and possibly beyond to build up a large enough retirement account to get you through your golden years.
The biggest mistake would be to retire too soon. While the lure of carefree retirement days may tempt you to leave the work force early, you need to be sure you have enough assets and income to pay the bills for two or three decades to come.
Before you take any action, you might want to discuss your situation with your tax advisor or financial advisor to see which course of action would make the most sense for you.