Focus on the retirement decisions with the most impact.
As you move closer to retirement, you’ll want to begin planning for your life in retirement, given the financial resources you’ve accumulated. This requires shifting your mindset, since for many years, your most important retirement decisions may have involved how much to save for retirement and how to invest your savings.
Accordingly, the most important decision facing most pre-retirees is when and how to retire. “How to retire” means whether you work part time for a while after you’ve left the full-time workforce.
Your decision will influence your finances, your health, and your lifestyle for the rest of your life. As a result, it’s well worth your time to make informed decisions, particularly if you have competing interests and priorities. Let’s look at each of these factors.
Your Finances Will Generally Improve If You Delay Retirement
The period between age 62 and 70 is considered the “critical retirement decision zone” because of the financial rewards of delaying retirement. Starting at age 62, for every year that a person delays their retirement, studies have shown that their income increases by roughly 8% to 9%. Some couples have even found that they can nearly double their retirement income if they delay their retirement from age 62 to age 70.
It’s also important to note that unless they wait until age 70 to retire, most people won’t reach the common retirement income goal of replacing 70% to 85% of their pre-retirement pay. This illustrates the tough dilemma facing most pre-retirees: They’ll either need to delay their retirement, reduce their spending in retirement, or do some of both.
One strategy to address this dilemma is to phase out of the workforce by working part time for awhile, just enough to pay your living expenses and allow your retirement resources to grow. Your ultimate retirement income won’t end up being much smaller compared to if you continued to work full time, and you can free up time to pursue your life goals and interests.
Another financial advantage to delaying retirement is that medical insurance usually becomes much less expensive if you wait to retire until you’re eligible for Medicare at age 65.
Your Health Is An Important Consideration
Many people want to take steps to improve their health; this goal might encourage them to retire early so they have more time to make necessary changes in their exercise, nutrition, and sleep habits. And indeed, “good health” is the factor often cited by retirees as a top reason for happiness in retirement.
As you’re considering the “when to retire” question, you’ll want to find a way to balance your health goals with your financial goals, since money worries can be a significant cause of stress, which can in turn negatively affect your health. This can be another reason to consider working part time for a while—you’ll get more time to achieve your health goals while also improving your finances.
Is Retirement Necessary To Pursue Your Life Goals?
Before you leave the workforce entirely, you’ll want to consider the important reasons why you want to retire. Do you have positive reasons that pull you into retirement, such as travel, pursuing your interests, and spending more time with family and friends? Or are there negative aspects of your work that are pushing you into retirement? Many people have a mix of positive-pull and negative-push reasons to retire, and it’s important to sort out and prioritize your reasons.
It’s also essential to consider whether you really need to retire fully to realize the benefits of retirement that mean the most to you. Can you realize some of these advantages while working part time for a period? For example, if you work part time, can you still travel more and spend more time with family and friends?
You—and your spouse or partner, if applicable—are the most important people to consider in these decisions. And if you’re married or have a life partner, their retirement is also an important consideration. Whatever you do, don’t retire because that’s what your friends are doing, or because that’s what you think is expected of you. It’s your retirement and your life! Do what makes the most sense for you.
