Picking the right time to retire is never a simple decision. For many people, the retirement day comes naturally after they’ve reached a certain number of years. However, apart from your birthday, there is a host of other factors you need to consider.
Once you retire, the role of the payroll department of the company you worked for is passed over to your portfolio. If you need to cut yourself a pay check each month, you better be sure that your bank account can deliver. A rule of a thumb puts four percent as a sustainable withdrawal rate. In other words, your retirement savings should be 25 times larger than your expected annual withdrawal. Unless you’re about there, it makes sense to work a bit longer, or at least part-time, or make concessions to your retirement budget.
Bull or bear
In the first decade of retirement, investment returns are of utmost importance. If you retire in the peak of a bull market, your portfolio is likely to build enough cushioning to protect you from future downturns and withdrawals. On the other hand, should you retire at the turn of a bear market, the early losses greatly increase your odds of running out of money. And while no one can say what the future brings, if the economy has turned for worse, it would be smart to postpone the retirement until the market recovers.
Your future plans
Before you retire, you should know the answer to these three questions: what do you want to do? Where do you want to do it? Who do you want to do it with? The answers to these will help you shape your purpose in the retirement years. If your number one reason for retiring is to escape your job, don’t jump that ship yet. It’s better to wait a few years more until you make a plan for meaningful pursuits than suffer a bad case of buyer’s remorse.
If you are blessed with excellent health and longevity runs in your family, working a few years longer wont undo your plans significantly. On the other hand, if you or your spouse are in poor health, delaying retirement often means you miss your chances to do things together. This is an especially important consideration if you’re both planning active retirement or looking for the right senior living facility. Contemporary communities, such as retirement homes at Mark Moran Vaucluse, enable you to both pursue your active and independent lifestyle and have 24-hr qualified care and personalised support.
Social security benefits
Retiring earlier than your full retiring age, for example at 62, means a permanent reduction of almost 30% to your social security benefits. However, as retiring earlier reduces your benefits, retiring later increases them. Individuals born after 1943 can expect an eight percent increase for each year they wait to claim benefits after full retirement age. This increase expires at the age of 70, so working until then maximizes your social security benefits.
Being on the same page
It’s not a rare case that couples are completely blindsided when it comes to their differences over retirement dreams, expectations, and plans. One may want to continue working, and the other is ready to lock up for good. One might want to downsize in a resort-like community, while other wants to stay close to the children and grandchildren. Being on the same page with your spouse is important before one of you decides to retire. If you plan together in advance, you can easily work through all the differences and retire as a couple.
Choosing the right moment to retire is a complex decision in which one factor may easily affect the others. However, by thinking about these issue on time, you can prepare everything to start your first day of retirement with a positive outlook.