At some point during your career, you may start to think seriously about retirement. And you might actually land on what you think is an optimal retirement age. But what if your estimate ends up being way off?
A recent Nationwide survey of older Americans found that, on average, current workers wish to retire at age 67. That's full retirement age (FRA) for Social Security purposes for anyone born in 1960 or later.
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However, when Nationwide asked current retirees when they left the workforce, they said age 60, on average, which was an earlier age than most had planned for. This means that current workers may be at risk of retiring seven years sooner than expected. And that's something it's really important to gear up for, just in case.
The problem with retiring sooner than planned
There are plenty of reasons you may end up in a situation where you're kicking off retirement sooner than expected. For one thing, although it's illegal to force older workers out of a job, some companies manage to get away with it, leaving senior members of the labor force in a tough spot.
Also, you might have to wrap up your career early due to health issues. And those issues don't even have to be your own. You may have to stop working to care for an aging parent or a partner whose health seriously declines.
The problem there, though, is that if you're forced to retire early, you might miss out on several crucial savings years. Remember, older workers get to make catch-up contributions in IRAs and 401(k) plans that can greatly boost savings. If you retire earlier than planned, it limits the number of years in which you can make those catch-up contributions.
Along these lines, let's say your original plan is to end your career at age 67, only you wind up retiring at 60, instead. At that point, not only might you have less money in savings, but your savings will then need to cover your expenses for an additional seven years.
Furthermore, you may not be entitled to your complete monthly Social Security benefit, based on your personal wage history, until age 67. If you're forced to retire early, you might have to claim Social Security early. And while the earliest age to do so is 62, for each month you sign up for benefits ahead of FRA, you'll receive a reduced benefit on a permanent basis.
Save extra, just in case
Since early retirement can be a tricky thing to predict and manage, you may want to assume you may end up leaving the workforce at a younger age than you're planning for. From there, you can make an effort to ramp up your savings while your career is still going strong to make up for potentially losing out on some savings years later.
Also, the more money you save for retirement, the easier it will likely be to wait on your Social Security claim. And the longer you wait (up to a certain point), the higher the monthly benefit amount you can lock in.
Let's say you're laid off from your job at age 60 and it's a struggle to find a new one, so you're effectively forced to retire. If you have plenty of savings to tide yourself over, you may be able to hold off on Social Security until FRA arrives, thereby guaranteeing yourself a higher ongoing benefit from the program for life.
Of course, early retirement isn't always something seniors are forced into. You may, at some point in life, decide that you've just plain had it with your job and quit on the spot.
A decision like that doesn't have to hurt you financially if you set yourself up nicely with plenty of savings ahead of time. So make every effort to save as if you'll be ending your career at a younger age than you think.
