More than four million Americans will turn 65 this year; meanwhile, another 4.1 million will reach that milestone in 2026, and 4.1 million more in 2027. Known as "peak 65," it's the period between 2024 and 2027 during which the largest number of Americans will reach age 65.
While 65 isn’t the Social Security full retirement age for many people, it is when Medicare kicks in, which is why some choose it as their retirement age.
But not having to worry so much about health insurance isn’t the only reason to retire at 65. There’s more to retiring than health care.
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So before you trade the briefcase or commute for strolls on the beach or traveling the world, see if you can answer these five questions. If you do, nothing is holding you back from retiring at 65. If you don’t, you may want to consider working a little longer or putting more focus on planning before you take the plunge.
#1 Do you have a cash flow withdrawal strategy in place?
Saving for retirement is important, but so is understanding how you’ll spend your money once you stop collecting a paycheck.
Without a plan, you could end up spending too much money in the early years of retirement, which may force you to change your lifestyle later on. Or you may be too frugal at the start of your retirement and not be healthy enough to spend your money as you get older.
It's why Jung Seh, a financial advisor at Bogart Wealth, says it's so important to come up with a withdrawal strategy before you retire. “When you are thinking about retirement, you want to think about the income sources you may have,” says Seh. “You want to have a cash flow withdrawal strategy in mind.”
When it comes to retirement income, there are several sources people draw from, including: tax-advantaged retirement savings accounts such as 401(k)s, IRAs and 403(b) plans.
There are also pensions, private investments and savings accounts. In addition to that, there is Social Security, annuities, dividends, real estate, and other income you may bring in. All of this has to be taken into account when determining what buckets you’ll draw from, when you'll draw from them and by how much.
If you're not sure, work with a financial adviser or determine on your own what your strategy will be before you let your company know your impending retirement date.
#2 Do you know when you’ll claim Social Security benefits?
If you were born in 1960 or beyond, your full retirement age is 67. That’s when you can collect 100% of your Social Security benefits. If you collect at 65, you will receive a reduction in your monthly payout for your lifetime. That doesn’t mean you can’t retire at 65, but it does mean you should figure out your claiming strategy ahead of time.
“There are different Social Security strategies, and it depends on different variables,” says Seh. “Let’s say you are married and you are both retiring at 65, and your full retirement age is 67. How do you cover that gap between your retirement and when you start Social Security?”
Is it better to draw from another source and wait the two years before claiming Social Security, or to collect at 65 and have a reduction in benefits? Can you hold out until age 70 to get a bigger monthly payment? Those are questions you should ask yourself and answer before you retire.
#3 Have you considered the tax implications of your retirement income?
As you approach retirement, it’s important to think about how your taxes will change. While you may be in a lower tax bracket in retirement than in your working years, you could face taxable events depending on where your retirement income is housed and how you withdraw it. If you don’t have a grasp on the tax implications of retirement income withdrawals, it may hurt your cash flow.
If your retirement income comes from a traditional 401(k) or IRA, pension, annuity, short-term capital gains, bond income, or non-qualified dividends, it will be counted as ordinary income and you’ll need to pay taxes on it.
If the income is in a Roth IRA or Roth 401(k), the money is tax-free. If all of your money is in a traditional 401(k) or IRA, you’ll also have to take required minimum distributions or RMDs when you reach 73. Having a strategy to cover taxes and which accounts you’ll use to minimize your tax hit is an important part of your retirement planning, says Seh.
#4 Can you visualize your retirement?
Being able to afford your retirement is a key factor in whether you can retire at 65, but equally important is having an idea of what your lifestyle will look like when you stop working. If you don’t know what you’ll do, who you want to do it with, and if you can afford to do it, then you probably aren’t ready to retire, says Bobby Lovgren, head of wealth planning at RBC Wealth Management U.S.
“If a trip to France is on your bucket list and it's not something you can afford to do today, would it be better to delay your retirement until you have more income?” says Lovgren. Do you plan to work part-time when you retire and, as a result, won’t need as much lifestyle income?
It’s important to establish a wealth plan based on what your picture of retirement actually looks like instead of going in blind and hoping you can afford whatever you decide to do.
#5 Why not work two more years?
You’ve made it to 65; can you make it another two years to your full retirement age of 67? If you wait two years, you’ll be able to collect your full Social Security benefits, you can save more, it’s two fewer years drawing from your retirement savings and two more years you’re earning an income.
If you are healthy, capable and have no reason to retire, ask yourself if you can last two or more years. Maybe a vacation is all you need to keep going.
Or maybe two years is unnecessary. You diligently saved, you have a sound plan, your documents are in order and you’re good to go. Either way, before you retire, ensure you are truly ready. Returning to the workforce may be harder than you think.
Planning is the key to retirement happiness
Whether you amassed a big or small fortune for your retirement, the key to being ready at 65 is planning. That means figuring out how much you’ll need in retirement, where the money will be drawn from, and how you’ll support your lifestyle when you do stop working.
For some, it means using their savings, for others, it means continuing to work in a different capacity. For others still, it's a combination of both.
Either way, with a vision and a plan, you can make retirement at 65 a reality.
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