Get Your Retirement Timing Right: Eight Things to Consider
Good retirement timing can support your well-being and financial security for years to come.
When it comes to retirement timing, it pays to look to comedians for advice. Despite receiving high ratings and a lucrative offer of $5 million per episode, comedian Jerry Seinfeld chose to retire Seinfeld after its ninth season. Citing that it was “all about timing,” he explained, “I wanted the end to be from a point of strength. I wanted the end to be graceful.”
Likewise, many aspire for a graceful transition from their careers. When it comes to retirement, timing can have a significant impact on our well-being. A study from the Center for Retirement Research at Boston College revealed that individuals who opted for retirement felt happier than those who involuntarily left their jobs.
Timing retirement “just right” is a nuanced decision and varies for each individual. However, several general principles can guide individuals in making an informed decision. Here’s a compilation of eight key considerations for getting the timing right.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
1. Consider your financial readiness
The most evident consideration for retirement is financial preparedness. Clearly, one can’t think of retiring if they can't afford it. But what’s the magic number?
The majority of Americans believe they need $1.8M to retire comfortably, according to the 2024 401(k) Participant Study by Charles Schwab. However, many can lead a comfortable retired life with less. The ideal savings benchmark varies based on individual circumstances. Fidelity recommends targeting 10 times your pre-retirement income by age 67 to sustain your current lifestyle in retirement.
2. Age matters in deciding when to retire
Retirement isn’t solely about savings; age matters, too. For penalty-free withdrawals from traditional retirement accounts, you need to be at least 59 ½. However, the rule of 55 allows those leaving their job at 55 or older to withdraw from their current employer’s plan without penalties.
Given most retirees describe Social Security as a major income source, it's vital to plan this aspect of your retirement thoughtfully. The full retirement age is 67 for those born after 1960. By delaying until 70, you boost your benefit, though you’ll have to lean on other funds in the meantime. Starting claims early at 62 reduces your benefit, but you’ll get more checks over time.
If you’re lucky enough to receive a pension, keep in mind it might also be curtailed if age and service requirements aren't met.
3. How your health plays into retirement timing
Your health can dictate the right time to retire. If work strains your well-being or if retirement offers better health prospects, it might be time to reconsider your career. According to the 2023 Transamerica Annual Retirement Survey, health concerns prompted 45% of retirees to retire earlier than planned.
Healthcare coverage is vital in this equation. With Medicare only starting at 65, ensure you’re protected. If you plan on retiring before this age, look into alternatives like securing a policy through the marketplace or opting into your spouse’s plan, if possible.
4. How is your career satisfaction?
If you love your job and derive satisfaction and purpose from it, delaying retirement might be appealing. Transamerica reports that 56% of those who retired later than planned did so because they enjoyed their work and wanted to stay active and mentally sharp.
Conversely, if work-related stress is detrimental, an earlier retirement or career change might be beneficial. A report from the National Bureau of Economic Research found that retirement often leads to immediate and sustained boosts in life satisfaction and overall well-being.
5. Looking at market and economic conditions
While it’s hard to predict market movements, you may want to tread carefully if you’re thinking of retiring during a major downturn. Significant losses or depletions to savings early in retirement – known as sequence risk – could derail your retirement plans by diminishing the longevity of your nest egg.
A poor economy may also be reason to think twice about your timing. Although, economic pressures may force some companies to offer appealing packages that make it better to retire sooner than later. These factors might be beyond your control, but they can present challenges or opportunities worth planning around.
6. Thinking about retiring early?
Some people are made for retirement, while others aren't. For most people, early retirement isn’t about taking time off and never looking back; it's possibly one of the biggest financial mistakes they may come to regret later on.
The 2024 Spending in Retirement study released this past week by the Employee Benefit Research Institute (EBRI) highlighted money concerns in retirement due to a lack of sufficient savings, inflationary pressures and rising credit card debt. The study also showed many people retiring earlier than expected due to reasons beyond their control, such as company closures, downsizing or health issues.
Eight in 10 retirees said Social Security is their current source of income, representing about half of their total current income. But as Social Security is at risk of future insolvency, having a backup, such as solid retirement income from an IRA or employer-sponsored 410(k) plan is essential for long-term financial security. Everyone should have an early retirement withdrawal strategy if they leave the workforce before 60.
Speaking of Social Security, your benefits will be reduced permanently if you take it too early. For example, if you were born in the 1960s and start taking your benefits at age 62, you will get 30% less each month for the rest of your life than if you'd waited until your full retirement age of 67 — just something to keep in mind if you're thinking about retiring early.
7. Did you forget to plan activities for retirement?
Many retirees, according to a survey from Retire with Possibilities, said the biggest challenge of retirement was the loss of daily structure and routine. The transition to retirement often means a shift from established routines and social engagements.
To make this transition smoother, it’s essential to have a clear vision for your post-retirement life. Without concrete plans, retirement can feel overwhelming – or boring. Before you take the step, ensure you have activities and goals to pursue. Embrace new experiences, volunteer and remain open to various pursuits to keep retirement fulfilling and vibrant.
8. The company you keep can determine retirement timing
What value do retirement activities hold if you’re experiencing them alone? According to a Merrill Lynch/Age Wave study, most retirees (61%) value the company they keep over their activities (39%). Getting your friend group set is crucial, as the cost of loneliness in retirement is high for both the individual and society.
While you shouldn’t rush into retirement just because your peers are, their decisions can influence your considerations. Notably, spouses play a significant role in each other’s retirement decisions. However, synchronizing retirement dates, even among spouses, isn’t always the best approach, given factors like age differences and financial needs.
But given our inherent desire for social connections, it’s apt to say that in retirement, teamwork really does make the dream work. Perhaps the central question isn't solely “When should I retire?” but rather “When should we retire?”
Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.
Related Content
-
Nasdaq Sinks 418 Points as Tech Chills: Stock Market TodayInvestors, traders and speculators are growing cooler to the AI revolution as winter approaches.
-
23 Last-Minute Gifts That Still Arrive Before ChristmasScrambling to cross those last few names off your list? Here are 23 last-minute gifts that you can still get in time for Christmas.
-
The Rule of Compounding: Why Time Is an Investor's Best FriendDescribed as both a "miracle" and a "wonder," compound interest is simply a function of time.
