What age can I retire? It's a common question and one that people would love to type into Google and have it kick out a quick answer. Unfortunately the reason we have a hard time finding a straight answer to this question is because it's not a simple question, and therefore it doesn't have a simple answer.
It’d be like asking Google the question “how long should I grill my steak?” Google can’t possibly give you an accurate answer with that. What type of steak do you have? How thick is it? How do you like your steak prepared? What temperature is your grill?
These are all questions that a grill master would have if he was trying to answer your question about how long to cook a steak. Likewise, as financial planners, we can get to a simple answer about what age is best for you to retire if we learn more about you. That said, similar to the things you would have to consider to cook a good steak, we can share some of the top considerations for honing in on your ideal retirement age. And that will be the focus of this blog.
To get to your target age, we like to reverse-engineer the process, so the following are 6 considerations that help us effectively do just that.
1) Envision your retirement lifestyle
Are you aiming to live a similar life as you are in your working years? In other words, will your monthly expenses remain the same or do you plan on upgrading or downgrading? To come up with an age which you can retire, we first need to have an idea of what you imagine your retirement lifestyle to be.
2) Do you have any large purchases or dream vacations planned?
Your target dollar amount for retirement should be divided into two buckets — one that you plan to live on, and the other that can be used for those large purchases you’ve dreamed about like a boat, cottage, trip overseas, etc.
3) What is your current income and how much do you have saved?
Are there adjustments or sacrifices you can make if necessary to set aside more than you currently are which would allow you to retire earlier if that is your goal?
4) What age do you want to retire?
Some people don’t put enough thought into this question. They assume based on their income and retirement benefits provided by their company, or the state of social security will determine when they can retire. The fact of the matter is, you have more control over when you retire than you might think! A good place to start, especially if you are in your 20s or 30s is to simply start setting aside 15% of your income. Studies show that targeting a percentage of income rather than a set dollar amount can lead to more success as you teach yourself good money habits and self discipline.
5) What income sources will be available to you?
Social security, 401k, 403b, IRAs, annuities, any pension plan... where do you anticipate deriving your income from? Perhaps a sale of a business or living off of an inheritance is an option. The goal in any retirement plan is to create a sustainable source of income that will last you potentially 30 to 40 years.
6) What is retirement to you?
This is a bit more philosophical, and probably not the question you were looking for an answer to when thinking about the original question. However, it is a valid question. For some, retirement is simply never working another day in their life. For others, retirement is a mentality. It is having the freedom to walk away from your career for a new, second act. Maybe that means working somewhere else, or starting a new hobby.
Knowing your outlook on retirement plays a factor when considering when you will be able to retire!
So back to the original question: What age can I retire? The answer: When you can be confident that the income sources and assets you have accumulated to live off of can sustain you throughout the retirement lifestyle you envision, considering all of your major purchases, taking into account any potential risks or headwinds, and can last you beyond your projected life expectancy.
Sound easy? It isn't. But thankfully you have someone in your corner who guides people through questions like these everyday, and we are here to help.