When Is It the Right Time to Retire?

Do you know when you’ll retire? You may have an idea of when you’d like to hang up your work hat for good, but how do you know when it’s the right time? Coming to a satisfactory answer about retirement will take some thought, help from your financial planner, and possibly a bit of input from friends and loved ones.

When deciding on the best time to retire, there is much more to consider than how much you have saved. Mitchell Langbert, an associate professor of human resource management at Brooklyn College, told The Cheat Sheet he is currently grappling with this very question now that he’s in his 60s. He recommends taking a look at both financial and personal factors when making your final decision:

I can think of at least three economy-wide considerations and four personal considerations in deciding when to retire. The three economy-wide considerations are financial market risk, inflation, and risk to the Social Security system. The four personal considerations are health, pleasure derived from work versus leisure or the opportunity costs of work, maximization of retirement benefits, and availability of part-time work.

Meet with a professional

couple talking to financial planner at home

Couple talking to a financial planner at home | iStock.com/Edward Bock

Before you decide on a retirement timeline, make sure you speak with a financial professional to make sure you’re on the right track. Consulting a professional may prevent you from making a money decision you’ll regret later. Steve Martin, founder of Oasis Wealth Planning Advisors, said it’s important to remember that the decisions you make with money do not just affect one area of your life. There is almost always a domino effect when it comes to financial decisions, he told The Cheat Sheet.

Multiple factors should be taken into account, including the proper asset allocation, income taxes, social security issues, health care, second homes, budgeting and cash flow analysis, and support of family members, just to name a few. And all of these issues should be integrated because a decision in one area can impact the other. With this complexity, it is recommended that an individual seek an advisor that has obtained a CFP® at a minimum.

When to retire

Here are some areas to consider before deciding on the right time to retire.

Evaluate your financial health

Woman holding red piggy bank

Woman holding red piggy bank | iStock.com/Tuned_In

The very first area you’ll need to evaluate is your financial health. High-interest credit card debt, a large mortgage, or any other outstanding debts should be addressed before you retire. If your finances won’t be able to withstand leaving the workforce for good, you’ll need to delay retirement. If the numbers aren’t adding up, you have some work to do, says Certified Financial Planner Ilene Davis. “If they are smart, a pre-retiree will know it’s the right time to retire when the math shows they can afford to retire based on conservative estimates about inflation, investment return, and life expectancy,” Davis told The Cheat Sheet.

In addition, Certified Financial Planner Scott Smith suggests that pre-retirees develop a retirement lifestyle spending analysis:

We recommend that retirees seek help establishing a retirement lifestyle spending analysis and then determining if their anticipated income streams from an investment portfolio, pensions, and Social Security will be able to meet the lifestyle spending. If it is shown that this spending can be met for a reasonable time period (often to age 95 or 100) then the new retiree should be able to retire.

Consider your physical health

doctor in a white coat holding a symbol to indicate heart health

Doctor holding a heart-shaped ball | iStock.com

Just because you’re healthy now doesn’t mean that will continue into retirement. Make sure to take your health as well as estimated medical costs into consideration.

Gary Swim, founder of Gary Swim Retirement, told The Cheat Sheet that retirees can expect to pay six figures for health care:

Fidelity Investments estimates a 65-year-old couple will pay $260,000 for health care during retirement; $70,000 more than it estimated in 2005 … Make sure that you are managing any current health conditions properly. And don’t forget to plan for the possibility of long-term health care. At least 70% of adults over the age of 65 will need some form of long-term care. A typical policy will help pay for adult day care, respite care, and stays in Alzheimer’s special care facilities, assisted living facilities, nursing homes and hospices.

Decide how much you value work

businessman texting in his office

businessman texting in his office | iStock.com/shironosov

Does your work bring you joy or are you anxious to be done with it so you can finally enjoy your life? If you’re in the former group, you may find that your work feeds your soul, and retiring would actually put you in the grave much faster. If you’re lucky enough to be in this position, it may not benefit you to rush into retirement.

If you can’t imagine leaving the work force and you find your career fulfilling, you may want to work as long as you’re physically and mentally up to it, said Langbert:

Those who work in physically demanding jobs may have little choice. The physical body gives way to time. Those in physically less-demanding jobs like teaching can continue. I have had colleagues at Brooklyn College work well into their seventies, and I recall meeting Professor Eli Ginzberg, (who founded the Conservation of Human Resources at Columbia University in 1950 under then-Columbia-president Dwight D. Eisenhower) when he was in his late eighties and still doing research at Columbia in the late 1990s.

Langbert continued, “Work is better than retirement for people like Ginzberg or Warren Buffett. In contrast, many people are bored even with teaching and research, so they will do better pursuing other interests or leisure.”

Take a look at your social life

Friends enjoying a meal

Friends Enjoying Meal | iStock.com/monkeybusinessimages

This issue may not even be on your radar, but it’s an important one to consider. Once your work life comes to an end, how will you spend your time? If most of your peers will still be working, you’ll need to figure out how you’ll spend what used to be your work hours. If work is still a big part of your social life, you may decide to hold off for a while until your peers catch up with you.

Certified Financial Planner Warren A. Ward, who offers financial planning services at WWA Planning & Investments, said many pre-retirees are so used to getting up every day to go to work that planning for life after work never crosses their mind:

Of course retirement won’t work without some financial certainties, but most Boomers have been working since their teens. They tend to have a lot of “get up and go to work” momentum built up and it usually takes a while for that energy to dissipate. The first question we ask is: “What will you do that first Monday morning you don’t have to go to work?” We don’t care what the answer is, but fairly often we get that deer-caught-in-the-headlights look, which tells us that we have some acclimation work to do. 

Have a discussion with your partner

Couple taking a selfie

Couple taking a selfie | iStock.com

One important conversation you’ll need to have is whether you and your spouse will retire simultaneously or stagger your retirements. Some things to consider are whether you’re prepared to handle the sudden change in cash flow and if you are emotionally ready to spend a lot more time together. “Coordination between spouses is often necessary. Often spouses have different earnings and savings. Proper coordination is essential to a successful co-retirement life,” said Smith.

A final word

couple on the beach enjoying retirement

Couple on the beach in retirement | iStock.com

Remember that it’s never too early to start planning for retirement. As you get closer to exiting the work force, another issue you want to keep in mind is preparing for lifestyle changes. You won’t be young and fit forever, so think about what you’ll need at home so that you can still live a full life. “Thinking about how you want to shape your future is all about taking control of what comes next … It would be wise to think about living arrangements before you are in a crisis situation,” said Lisa Curtis, founder of Charter Wellness. “For example, do you need to put in hand rails in the bathroom or move the bedroom downstairs so that in the future you don’t have to climb stairs?”

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