FOR A BETTER RETIREMENT
When is the right time to retire?
Timing retirement is not just about age. There are important factors to consider when planning the right time to retire:
An individual’s health and the health of his or her spouse should factor into the decision about when to retire.
A retiree in poor health may not be able to work full time or even part time during retirement. In addition, poor health may factor into a shortened projected life expectancy and higher short-term health care costs when calculating how long your money will need to last.
Conversely, a retiree with a good bill of health and a family history of longevity may want to factor in a longer life cycle for how long their savings will have to last.
Life Expectancies Are Getting Longer
When Social Security benefits began in 1940, the life expectancy of Americans was 65 years. In 2016, according to the Centers for Disease Control and Prevention, life expectancy has reached 78.6 years. People age 85 or older make up the fastest-growing segment of the U.S. population. With advances in medicine and technology, this trend is likely to continue, but retirement assets are less likely to keep pace. For many, this means working longer. A couple in good health may want to plan for scenarios in which one or both live 30+ years in retirement.
Longer life expectancies also are likely to impact health care costs, one of the largest out-of-pocket expenses in retirement. For individuals looking to retire before age 65, health care can present a problem because Medicare benefits are not available until recipients reach age 65. For those considering retiring before age 65, the cost of private health care insurance coverage should be factored in for pre-Medicare years and possibly after age 65 for partial coverage.
Health Care Evolution Fuels Longer Lives
Continued health care advances translate to longer life expectancies
Age will dictate access to certain benefits and income sources in retirement.
The typical age at which individuals can start taking withdrawals from 401(k) accounts without penalty is 55 if separated from service or no longer working. If planning to retire before then, a retiree may have to rely on other sources of income or assets until retirement accounts can be tapped. Waiting until age 55 for 401(k) access or age 59½ for retirement account access can still pose problems because Social Security isn’t available until age 62 or later.
Full retirement age – the age at which retirees can expect to receive unreduced Social Security benefits – falls somewhere between ages 65 and 67, depending on the year a person was born. Knowing the age breakpoints can help determine how much and when to expect retirement income. This may influence the timing of a person’s departure from the workforce.
It goes without saying that money is needed to live in retirement, but how much will vary significantly by retiree.
It’s important to understand minimum expenses and how much money will be needed to cover those costs. For near-retirees who may not have much money saved outside of a qualified retirement plan, it may become necessary to work until their retirement assets become accessible without penalty to meet short-term cash flow needs. On the other hand, a near-retiree with liquid assets that are accessible may have the means to retire early or move into part-time work prior to tapping retirement funds.
Another important consideration before retirement is deciding what to do if leaving the workforce.
Leisure activities might be good initially, but many retirees want more during retirement to keep themselves stimulated. Think about where to spend the extra time and be intentional about living in retirement. A happy retirement is one that is filled with passions.
Where will you spend your time in retirement?
- Part-time work
- Pursuing a passion or hobby
* Prudential, "Planning Your Retirement? Expect the Unexpected" https://www. prudential.com/media/managed/documents/ rp/Planning_Your_Retirement_Expect_the_ Unexpected.pdf
1 With separation from service