Retirement is the ultimate goal for many workers. It’s a time to check out of the daily grind and focus energy on what you want to do rather than what your boss tells you to do.
Traditionally, 65 has been considered an ideal age to retire, but when and how people retire seems to be changing.
“This is not your parents’ or grandparents’ retirement,” says Marilyn Suey, certified financial planner and founder of The Diamond Group Wealth Advisors in San Ramon, California. Rather than checking out of a job and spending idle days at home, many retirees are opting for a second act, according to Suey.
The prospect of an encore career or the pursuit of a passion project is one reason some people may leave their current jobs early. On the other hand, modern medicine has extended lifespans and made it possible for many to work well into their 70s and beyond. And yet there is still something to be said for retiring at the traditional age.
So, what is the best age to retire? It all depends on your unique situation and goals.
[How to Calculate Your Life Expectancy]
Retire Early to Maximize Time Spent on Personal Pursuits
At one time, retiring early meant quitting at age 62 when workers first become eligible for Social Security benefits. The FIRE movement — financial independence, retire early — has moved the goalposts to the 50s or even earlier for some people.
Quitting your job at this age can be tantalizing, but it comes with challenges.
“You get to enjoy life a little more, but with that, it’s more time you have to self-fund,” says Kaitlyn Haney, a certified financial planner with Fort Pitt Capital Group in Pittsburgh.
Not only will you need a nest egg large enough to sustain your financial needs for 40 or more years, but you may not have immediate access to key retirement funds and programs when you leave work. For instance, you’ll need to find your own health insurance since Medicare doesn’t start until age 65, and tax-advantaged retirement funds can’t be tapped without penalty before age 59 1/2.
Pros and Cons of Early Retirement
Pros:
— You have more time to pursue personal interests and activities.
— There’s a greater possibility of good health in retirement.
Cons:
— You may need to buy your own health insurance.
— You need significant financial reserves to sustain a long retirement.
A Mid-60s Retirement to Balance Personal and Financial Needs
Retiring in your mid-60s still makes sense for many people. At this point, you are old enough to have hopefully amassed sizable savings, but you are still young enough to enjoy active pursuits such as travel.
Plus, Medicare kicks in at age 65, which eliminates the need to work for health insurance, and full Social Security retirement benefits are available at age 66 or 67, depending on your birth year. Once you begin both programs, quitting your job or ramping down hours might be best from a tax perspective.
“A lot of people don’t think Social Security is taxable at all,” Haney says.
However, if you have enough other income, a portion of your Social Security benefits may be subject to federal tax. There have been proposals to eliminate this tax, but whether they will be enacted remains to be seen.
Haney also notes that Medicare premiums are based on your income from two years prior. You may be assessed a higher monthly premium if you are a high earner. Between the possibility of taxes on Social Security and higher Medicare premiums, workers may decide it is best to step out of the workforce at or around age 65.
Pros and Cons of Traditional Retirement
Pros:
— Medicare eligibility begins at age 65.
— Full Social Security retirement benefits are available at age 66 or 67, depending on your birth year.
Cons:
— You have fewer years in retirement.
— There’s a greater possibility of job burnout before retirement.
[10 Ways to Save More for Retirement]
Retire Late if You Enjoy Work or Need to Shore Up Reserves
If you delay retirement, you’ll get an 8% increase in Social Security benefits for each year you wait past your full retirement age until age 70. Extra time in the workforce could also help you save more or wipe out any remaining debt.
“There are a lot of pros to continuing working,” says Steve Parrish, adjunct professor of advanced planning at The American College of Financial Services. “It not just helps financially, but it helps mentally.”
Many people enjoy what they do, and, in that case, there is no reason to stop working after hitting an arbitrary age. Parrish and Suey note they have continued to work past age 70 for this reason. The trade-off for working later in life is that you may have to forgo some activities if your health declines before you can pursue them in retirement.
Pros and Cons of Late Retirement
Pros:
— You enjoy larger Social Security payments by delaying benefits until age 70.
— A positive work environment can foster a sense of purpose and social interaction.
Cons:
— You may have less time to enjoy retirement activities.
— There’s a possibility of missing out on some activities if your health declines.
[Can You Retire at 65 With $0 Saved?]
How to Decide When to Retire
Determining the best age to retire is a highly personal process that involves considering your savings, risk tolerance, individual goals and health expectations.
“You really have to know your numbers,” Suey says.
Retirement doesn’t have to be an all-or-nothing proposition either.
“More and more, a lot of people are doing this phased retirement,” Parrish says.
For example, workers quit their full-time jobs but continue to work as consultants or on a freelance basis in the same field. Others may open a business or pursue a second career in a different industry. Switching to remote work or part-time hours are other options for older Americans who are getting ready to retire but don’t want to leave the workforce completely.
Still, many people end up retiring earlier than expected, Parrish notes. They or a loved one may encounter health issues that make it impossible to continue working.
If you aren’t sure whether you have enough money to retire or need help weighing your options, a financial advisor can walk you through various scenarios and help you determine the ideal time to call it quits.
More from U.S. News
8 Ways to Make Extra Income in Retirement
Work-From-Home Jobs for Retirees
What Is the Best Age to Retire? originally appeared on usnews.com
Update 11/13/24: This story was previously published at an earlier date and has been updated with new information.
