Kiplinger recently published an article, “Income, Not Age, Should Determine Your Retirement Date.” According to the article, don’t think so much about your age. Think, instead, about your income. That’s what helps give you your financial independence in retirement.
If you feel you’ll have enough money coming in without working at your current job to cover the lifestyle you want for as long you live, you have the option to retire any time you like. But if you aren’t sure, you can’t stop working just yet.
Get focused. Don’t think about just stopping work at 60, 65, or even 70, without a retirement income plan to pay your bills. People spend years focused on growing and saving their money, but fail to change their mindset as to how they’ll manage that money when they no longer have a paycheck. Instead, they choose an age—62, 65, 66, 70—one of several milestone years for Social Security and Medicare. Those are the ages when most people retire.
Go beyond savings. With the assistance of a wealth manager, begin examining your current fixed-income sources: Social Security, a defined-benefit pension (if applicable), or an annuity and how you can help maximize those with the proper timing and claiming strategies.
Make a budget. Create an approximate but realistic retirement budget. Major expense categories are mortgage and car payments (if applicable), food, transportation and health care. You should also add in travel, gifts and hobbies. You might also need some services as you age, like yard work or nursing care.
After you calculate your fixed income and your budget needs, you can see if there’s a gap. If you have more than enough money to cover your expenses, you may be able to retire earlier than you thought. However, if not, you’ll have to figure out how you’ll draw funds from your retirement fund to close that gap.
Be flexible. Understand that no matter how comprehensive your plan, it can’t predict all of the uncertainties you might experience during a long retirement. If you begin with a solid plan and stay flexible about refining it as you go, you’ll increase the chances that your financial future will be secure.
Reference: Kiplinger (October 2017) “Income, Not Age, Should Determine Your Retirement Date”