As you move toward retirement, consider the merits of building a life that is light on fixed assets and heavy on experiences. When younger, most people want a bigger house to fit the kids and keep up with the Joneses. They want to live in a great neighborhood with great schools. The same logic is used when purchasing cars. Bigger and more expensive is better, safer, etc.
Unless you have enough money to fund both, retirement should be focused on the experience, not the asset. The wisdom of age should have taught you that life isn’t all about who has the most square footage or the biggest car collection. Contrary to popular belief, he who dies with the most toys does not, indeed, win. In all likelihood, he who dies with the most toys is a bit of a jackass. A life spent in dogged pursuit of rich experiences and meaningful relationships can be infinitely more rewarding than one spent focused on the acquisition of more stuff.
If you are eligible to receive Social Security benefits, you can begin collecting reduced benefits as early as age sixty-two. As you can see from the chart below, however, most people (all 78 million baby boomers included), will need to be on the downhill slide to seventy before becoming eligible for full benefits.
|Year of Birth||Full Retirement Age|
|1937 or earlier||65|
|1938||65 and 2 months|
|1939||65 and 4 months|
|1940||65 and 6 months|
|1941||65 and 8 months|
|1942||65 and 10 months|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 or later||67|
*Source: Social Security Administration
Deciding when to retire is not always easy. Many people simply base the decision on their birthday, but there are a whole host of other factors that should weigh into your thinking as well. Here are seven signs it’s time to retire:
1. Your bank account
When you retire, your portfolio takes over the job that the payroll department handled while you were working. If you have to cut yourself a paycheck each month, it makes sense to be sure that your bank account is up to the task. A common rule of thumb puts a sustainable withdrawal rate at about 4 percent. Another way to look at that would be to shoot for retirement savings that are twenty-five times larger than your expected annual withdrawal. If you are not quite there yet, it might make sense to work a little longer (or work part-time), save more, or make cuts to your anticipated spending during retirement.
2. Your bucket list
Before retiring, you should know the answer to three key questions: What do I want to do? Where do I want to do it? Who do I want to do it with? Knowing answers to those questions will help give you purpose and a plan for how to spend your time. If your key reason for retiring is to escape your job, don’t pull the trigger just yet. Wait until you have a plan in place for meaningful pursuits. Doing so will likely help you avoid a bad case of retirement “buyer’s remorse.”
3. Your health
If you are in excellent health and have longevity in your family, working a little longer may not significantly cut into your plans. Not so if you or your spouse are in poor health. In that instance, delaying retirement could mean your chances to do certain things are gone for good. This is especially true if you are planning an active retirement. Take an honest look at your health and life expectancy and weigh that into your decision about when to retire.
4. The markets
Investment returns during the first decade of retirement are extremely important. Retire on the cusp of a bull market and your portfolio will likely build enough padding to withstand future downturns and withdrawals. Retire and begin taking withdrawals at the beginning of a bear market, however, and those early losses will greatly increase your odds of running out of money. Experts refer to this as sequence risk, but it could just as easily be referred to as luck. No one has a crystal ball, but if the economy appears poised for a downturn, you might want to delay retirement (and withdrawals) until things rebound. The same is true if your portfolio has significant losses in the years leading up to retirement. In that case it might make sense to keep working until your investments have a chance to recover.
5. Health care benefits
Recent studies by Fidelity and others estimate that a sixty-five year old couple retiring today will need between $200,000 and $400,000 to cover health care costs during retirement. That is in addition to what Medicare already covers. Having a plan to cover those costs—whether by savings, private insurance, or a Medicare supplement policy—is an important consideration when deciding when to retire.
6. Social Security benefits
Retiring at sixty-two would mean a permanent reduction of almost 30 percent to your Social Security benefits compared to what they would be if you waited until your full retirement age. Just like retiring early reduces benefits, retiring later increases them. Those born after 1943 can expect an 8 percent increase for each year they wait to claim benefits after full retirement age. This increase goes away at age seventy, so working until then will result in maximum benefits.
7. Your spouse
You would be surprised at the number of couples who are blindsided by differences over retirement dreams, plans, and expectations. One wants to keep working while the other is ready to be done. One wants to move to the beach and the other wants stay close to the kids. Are you on the same page with your spouse when it comes to retirement? Make sure you do your planning together so you can work through any differences early and enter retirement as a team.
As you can see, deciding when to retire is a complex decision with many moving parts. By giving it the time and attention it deserves, you can help ensure that your retirement gets off on the right foot.
After putting down roots during their working years, it’s no surprise that most people choose to stay put when they retire. According to a study by Boston College’s Center for Retirement Research, only about 10 percent of older adults move in any given two-year period. The shaky economy and declining home prices are likely pushing that number even lower. But if you’ve always dreamed of relocating, now could be the perfect time.
With home prices falling for the better part of four years, it is definitely a buyer’s market. And while buying into a declining market can be unsettling, buyers are being rewarded with increased leverage when it comes to negotiating things like purchase price, repairs, and closing costs. Add to that the fact that mortgage rates remain near generational lows and making a move could be much less of a financial burden than it was just a few short years ago.
Of course, you likely need to sell your current house, but depending on where you live, selling could be easier than you think. The housing downturn has not affected all areas equally. Prices have fallen much more sharply in places like Florida, Arizona, and California—all traditional retirement locales. If you’re selling your house in the Midwest and moving to Florida, for example, you might actually come out ahead. This is especially true if you take the opportunity to downsize to a smaller place.
Don Jasper of Omaha, Nebraska recently purchased a home for retirement in Cape Coral, Florida. For years, he and his wife have talked about spending at least part of the year in a warmer climate. Recently retired, they took a vacation to Florida and spent part of the trip meeting with a realtor. “We were surprised at how reasonable home prices had become,” said Mr. Jasper. “The home we bought would have been out of our price range a few years ago.”
Getting a good deal isn’t the only factor that should influence your decision on whether to move. Tax rates vary greatly from state-to-state, so you should consider how things like state sales taxes, personal income taxes, retirement income taxes, and property taxes will impact your retirement budget. Inheritance and estate taxes might also affect your decision. In addition to taxes, you should consider things like climate, cost of living, healthcare facilities, proximity to family, and leisure and cultural activities. Talk with your spouse about what’s important to each of you and use your vacation time to visit the places you are considering.
Making the transition
Once you’ve made the decision to move and have settled on the best community for you, it’s time to begin the transition. Find a realtor you trust and begin looking at available properties. If possible, buy your new home a year or so before you retire. This will not only give you a place to stay when you visit, but will allow you time to begin setting up the new house. Each time you visit, bring things from your old house with you. This will help the new place feel like home and will help to de-clutter your old house, allowing it to show better when (or if) you decide to sell.
Some who choose to relocate initially regret their decision because they miss family and friends and because their new surroundings feel unfamiliar. To make the transition more natural, go out of your way to meet new people and get involved in the community. Finding a church to attend or joining a country club are great places to start. Also scout out things like where you will buy your groceries, get your car fixed, go to the dentist, and get your hair cut. Knowing your way around like a local will make you feel like you’re a part of the community as opposed to just an outsider on an extended vacation.
Finally, if you’re moving to a different state, meet with your attorney to make sure that your will, trust, and powers of attorney will be valid in your new state of residence. Make any revisions necessary.
Deciding where to live when you retire is one of the most important decisions you will make. It will impact your finances, friendships, leisure activities and even how frequently you see your family. Moving isn’t for everyone, but when done properly it can be the beginning of a rewarding new adventure. “We’re really excited,” says Mr. Jasper, “but we definitely did our homework.”
Joe originally published this article at www.fpanet.org.
At the risk of sounding obvious, you have a much greater chance of accomplishing a goal if you know exactly what it is you want to do. Someone committed to going to Harvard has a much greater chance of ending up there than does someone who just wants to go to college. Someone committed to climbing Mount Everest is much more likely to reach the summit than someone who just wants to climb mountains.
How about you? When it comes to retirement, how specific are your plans? do you want to “save” or do you have a specific dollar amount in mind? Do you want to “retire as soon as possible” or do you have a specific date in mind. Do you want to “travel” or do you have a goal to visit five countries a year? A decided person is a productive person. Being specific allows you to aim at a target. Not surprisingly, aiming at the target improves your chances of hitting it.