Imagine yourself back in high school algebra class. However, instead of one teacher standing in front of you, there are 10 or 12, and they're all talking at the same time. That's what it can be like when you're looking for financial information. Nearly everyone who advises you has a slightly different opinion about the best way to plan for retirement.
If you ask anyone the perfect age for you to retire, the answers are likely to be all over the place. The following questions can help you determine whether the time is right.
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1. Do you have sufficient resources?
Social Security is only intended to replace 40% of your income. What about the other 60%? Do you have a retirement account, retirement annuity, rental income, or self-employed retirement account to cover the bulk of your expenses? If not, it may mean you need a few more years of work and savings to retire comfortably.
2. Do you suspect you'll live a shorter- or longer-than-average life?
Life expectancy is a funny thing. You may live a much longer life than you expect, even if your parents died relatively young.
According to the Social Security Administration's (SSA) life expectancy table, a male baby is expected to live about 74 years. However, once a male reaches age 65, his life expectancy jumps to 83 years. A newborn baby girl has a life expectancy of 80. Once she reaches age 65, her life expectancy is nearly 86 years.
Regardless of what an actuary table tells you, you may find yourself at age 90, still reading the books you love, visiting family, and generally living a good life. Ask yourself if you've accumulated enough money to last you your entire lifetime.
3. Do you understand how Social Security treats earned income?
If you've decided to retire before reaching full retirement age (67 for most) but still plan to work, be sure to understand how Social Security will work. Until you reach FRA, the SSA will withhold $1 for every $2 you earn over $24,480 for the year. So, if you earn $34,480, that means you're $10,000 over the limit, and the SSA will withhold $5,000.
However, that's not lost money. Once you reach FRA, the SSA will recalculate your monthly benefits and will add anything withheld due to working back into the benefits you receive.
4. Have you planned for how spousal benefits work?
If you're married and your spouse plans on claiming spousal benefits, they're eligible for up to 50% of your benefit at FRA. If you retire early and receive a smaller benefit, your spouse's benefit will also be permanently reduced, to up to 50% of the amount you receive.
Once you have sufficient resources, a plan for making your savings last, know whether you plan to work after retirement, and have any spousal benefits budgeted, it may be time to meet with a financial advisor. An advisor can look over your plans, point out any potential issues, and, if everything looks good, give you the confidence you need to move into retirement.
