If I could pass on just one key rule for people pondering their retirement date, it would be this:
Don’t think so much about your age. Think, instead, about your income.
Income is what helps give you your independence in retirement. If you’re confident you have enough money coming in to cover the lifestyle you want for as long you live, you have the option to quit your job any time you like. If you aren’t sure, you can’t.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Focusing on the wrong things
You can’t just stop working at 60, 65 or even 70 without a retirement income plan to pay your bills.
Seems simple enough. Still, very few of the people who come to our office looking for help have a budget prepared or a retirement income plan in place. They’ve spent years focused on growing and saving their money, and they haven’t yet flipped their mindset to how they’ll manage that money when they no longer have a paycheck.
So they choose an age — 62, 65, 66, 70 — because those are milestone years for Social Security and Medicare, and they’re the ages when most people retire.
Look beyond your savings
Now, I’m not suggesting that instead of saying, “I’m retiring at 65,” you should say, “I’m retiring at $1 million.” Choosing a dollar amount without a retirement income plan is almost as random as choosing a retirement age.
You’re going to have to work a little harder than that.
With the help of a wealth manager, you should begin looking at your current fixed-income sources — Social Security, a defined-benefit pension (if you and/or your spouse have one) or an annuity — and how you can help maximize those payments with the proper timing and claiming strategies.
Get budgeting
You also should put together an approximate but realistic retirement budget. Don’t assume you’ll spend less in retirement than you do now — many people actually spend more in the first few years, when every day feels as if you’re on vacation.
Major expense categories include your mortgage and car payments (if you’ll still have those, or if you expect you might have them in the future), food, transportation and health care. And don’t forget the fun stuff: travel, gifts for the grandkids, golf and other hobbies. Keep in mind, too, any services you might need as you age — from yardwork to home repairs to nursing care.
Once you know your fixed income streams and your budget needs, you can determine whether there is a gap. If you have more than enough money to cover your expenses, you may be able to retire earlier than expected. If not, you’ll have to figure out how you’ll draw from your retirement nest egg to fund that gap. Your financial adviser can help you build strategies that cover asset allocation, inflation and tax implications. And he or she can help you update your plan as time passes.
Stay flexible
Ultimately, no income plan, no matter how comprehensive, can predict all the twists you might encounter during a long retirement. But if you start with a solid plan and remain flexible about refining it as you go, you’ll increase the odds that your financial future will be secure.
And the only time you’ll have to mention your age is when you ask for the senior discount.
Kim Franke-Folstad contributed to this article.
-
How a Part-Time Job in Retirement Can Boost Your Social LifeA part-time job in retirement, like walking dogs or helping with home projects, can combat loneliness by sparking new friendships and boosting your social life.
-
What Set Warren Buffett ApartAs Warren Buffett prepares for retirement, we reflect on what we've learned from his 60 years of leadership at Berkshire Hathaway.
-
Asset-Rich But Cash-Poor? A Wealth Adviser's Guide to Helping Solve the Liquidity Crunch for Affluent FamiliesMany high-net-worth families experience financial stress because of a lack of immediate access to their assets. Liquidity planning aims to bridge the gap between long-term goals and short-term needs and avoid financial pitfalls.
-
Social Security Planning Strategies and Challenges as It Hits Its 90th Year: A Financial Adviser's GuideLonger life expectancies and changing demographics put extra pressure on the program, making it crucial for future retirees to understand its evolution, common myths and how to strategically plan for their benefits.
-
How to Build Your Financial Legacy Three Piggy Banks at a TimeA wealth adviser shares a childhood saving technique that taught him lessons of stewardship, generosity and responsibility and helped him answer the question we all need to answer to define our lives by impact rather than greed: 'What is this all for?'
-
Which of These Four Withdrawal Strategies Is Right for You?Your retirement savings may need to last 30 years or more, so don't pick a withdrawal strategy without considering all the options. Here are four to explore.
-
DST Exit Strategies: An Expert Guide to What Happens When the Trust SellsUnderstanding the endgame: How Delaware statutory trust dispositions work, what investors can expect and why the exit is probably more important than the entrance.
-
Think Selling Your Home 'As Is' Means You'll Have No Worries? Think AgainThere are significant risks and legal obligations involved in selling a home 'as is' and by yourself, without a real estate agent.
-
What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's GuideFor Americans in lower- and middle-income tax brackets, the enhanced deduction for older people reduces taxable income, shielding most of their Social Security benefits from being taxed.
-
Financial Planner vs Investment Manager: Who's the Better Value for You?When markets are shaky, who do you trust with your money? A recent study provides useful insights into the value that different financial professionals offer.
