When Is the Best Time For You to Retire?

Nine Important Factors to Consider and the Most Important Factor that Is Often Overlooked  

The retirement wave is about to hit. A whopping 4 million Americans are expected to turn 65 every year for the next four years. That means approximately 11,200 Americans who will turn 65 every day through 2028, up from 10,000 per day over the past decade!

The average retirement age in the US is 63, according to the 2024 Mass Mutual Retirement Happiness Study. The study found that generally, people who retired expected to work longer than they actually did and often stopped working for unforeseen reasons such as health issues or disability.

Sixty-three might work for some people, but how can you know if YOU are ready to retire? What is the best way for you to determine personal and financial readiness?

Certain factors heavily influence your retirement age. For example:

• Retirement age is influenced by profession, lifestyle, expected life span, marital status, disability, education levels, and economic conditions and status.
• Work conditions, health, and motivation can also significantly impact how long someone can delay retirement.
• Physical and psychological strain can cause older workers to retire sooner than expected.
• Married individuals and wealthier folks are more likely to retire early.

Those who are widowed or diagnosed with a major illness (for themselves or a spouse) are also more likely to leave the workforce sooner.

When Are You Financially Ready to Retire?

Retirement is not a one-size-fits-all thing. Some people retire in their 50s, while others work well into their 60s and 70s, and some people in very satisfying careers never “retire” until they are forced to stop working because of disability or death.

If you are not in the last category, when trying to decide when to retire, it’s important to consider what’s best financially. For many, that’s when your Social Security and any other income, along with your retirement assets, regular investments, and savings combined can generate enough income to cover your ideal retirement lifestyle.

Below are the top 10 things you should consider if you are contemplating when to retire:

1. The earlier you retire, the more likely you will run out of savings, especially if you wind up needing long-term care. Early retirement allows you to spend more time with your friends and family and focus on non-work-related hobbies and interests. However:

• It’s vital to factor in the potential for large unexpected expenses, such as major home renovations, health care expenses that may not be covered by health insurance, and the vitally important but often overlooked likelihood of needing long-term care, whether at home, in an assisted living facility, or in a nursing home.
  • If you’re like most people, you hope to live at home until your last breath. Unfortunately, you have only about a 30 percent chance of this happening because if you’re over 65, you have a 70 percent chance of needing long-term care in a facility. What may start off as a “regular” health problem, perhaps with treatment covered by Medicare and other health insurance, often turns into the need for long-term care (which is not covered by Medicare or any other health insurance), making your retirement a long, slow, downward spiral toward an undignified end.
  • This long downward spiral may also be caused by a medical condition for which there is no real “health care” treatment, such as most types of dementia and other incurable neurodegenerative diseases which ultimately result in the need for long-term care.
  • Most retirement planners naïvely assume that you will live a full and active life until you die in your sleep, or they might factor in “normal” health care expenses that you are likely to face as you age, such as co-pays, deductibles, and catastrophic health care limits. But I can tell you firsthand that most retirement planners simply ignore the likelihood that you will need long-term care, and they fail to factor in this potentially catastrophic expense. Part of this blame falls on the financial planners themselves, and part of the blame falls on the retirement planning software systems that most retirement planners use to illustrate retirement expenses, because these software systems simply ignore long-term care, or require the financial planner to manually add in the potential expenses of long-term care rather than building that into the software program as they often do with “regular” health care expenses.
  • Most retirement plans don’t address the enormous issue of long-term care expenses. That’s why so many people wind up broke, either becoming a burden on their family or being forced into institutional care.
  • Good retirement planning addresses these potentially catastrophic long-term care expense that so many people don’t want to talk about.
  • Good retirement planning acknowledges the likely reality of you needing to pay a significant amount of money for long-term care expenses, whether that means paying these long-term care expenses privately, through the asset protection provided by long-term care insurance coverage, or by Medicaid, which can be obtained without having to go broke by doing asset protection planning with an experienced Elder Law attorney such as those at the Farr Law Firm.
• Experts advise you delay withdrawal from your retirement savings to give your investments more time to grow. The same logic generally applies to when you should claim Social Security benefits.
• To retire early, it is important to ensure you have a long-term retirement plan that won’t let you to run out of funds prematurely.
• Retiring later gives you more time to contribute to your nest egg without touching the funds and more years you can get after or pre-tax benefits when contributing to your retirement plan.
• Workers ages 50 and older can also make annual catch-up contributions to a traditional or Roth 401(k) or IRA.

2. How much money you already have set aside for retirement is a big factor in determining when to retire.
   • Remember that retirement savings in retirement plans like IRAs and 401(k)s grow over time due to compound interest and investment opportunities.
   • The 4% rule states that you must have enough money put aside to start withdrawing 4 percent from your portfolio during your first year of retirement, increasing the withdrawal each year to cover inflation for 30 years.
     • This rule has been criticized for being overgeneralized.
     • Depending on your age and the type of investments you have, you may require a bigger or smaller nest egg.
     • Inflation and salary increases should also be considered when determining if your current monthly savings and investments will be enough.

3. If you’re not yet near retirement age, the most effective way to grow your assets and build long-term wealth is by contributing what you can over time.
   • Money in a 401(k) or IRA will have more time to grow and compound.
   • The further out you are from retirement, the more risk (and possibly higher returns) your investments can take.
4. Social Security is generally considered supplemental income to an individual’s retirement savings account.
   • Currently, the average monthly Social Security benefit is about $1,770. The maximum monthly payout in 2024 at full retirement age is $3,822.
   • You can start receiving Social Security retirement benefits as early as 62, but you won’t be able to access your full benefits until you reach the full retirement age. Age 62 is considered an early retirement, and your benefits will be reduced by nearly 30 percent until you reach full retirement age. The maximum Social Security benefit you can earn at 62 is $2,710 monthly in 2024.
   • Full retirement age depends on your birth year. For example, the full retirement age is 67 for those born in the 1960s or later. However, those born between 1943 and 1959 can reach full retirement age between 66 and 67.
   • Medicare benefits kick in at age 65.
   • Delaying Social Security benefits increases the eventual monthly payout, but Social Security alone won’t cover a comfortable retirement for most people.

5. A 401(k) or other employer-provided retirement plan is considered one of the best retirement plans because of growth earning potential and tax benefits. You can contribute up to $23,000 to most of these plans in 2024, and individuals age 50 and older can contribute additional “catch-up” contributions of $7,500.
6. Roth IRAs can also be emergency funds. As a general rule, all funds in your Roth IRA can be withdrawn tax-free after age 59 1/2. This is important if you need funds for unexpected medical expenses, home renovations, or long-term care expenses.
7. When envisioning your retired life, consider lifestyle considerations.
   • These can include vacations, locations, leisure activities, and hobbies. Also include costs such as housing, food, and health insurance.
   • Factor in the increase or decrease in the cost of living and tax considerations if you plan to move to a new city.
8. To avoid overspending your savings and to get a clear picture of your situation, create and maintain a realistic monthly budget.
   • Maintaining a realistic budget allows you to spend on hobbies, leisure activities, etc., without fearing running out of money too quickly. To get started:
     • Take a detailed look at everything you spend money on and what matters the most.
     • Create a budget for your projected spending.
     • Figure out how to cut both big and small costs. Get rid of things that are not related to your top priorities.
     • Take a look at where you live and what you do on a daily basis. Make any changes that can save you money and help you live a more meaningful life.
     • Remind yourself about what is important: Write down your retirement priorities, and refer to them often.
   • Along with implementing a new budget, you’ll want to ensure you’re considering potential health care costs for you, your spouse, or other dependents. The older you get, the greater your chance of spending on unexpected health care-related expenses and long-term care.
9. Meet with a Retirement Planning Professional. The best way to figure out when you can realistically retire — and how to stay on track to meet that goal — is by consulting with a retirement advisor who is also a Certified Elder Law Attorney, such as Evan Farr.
   • To create a strong plan, thoroughly evaluate your current financial situation and long- and short-term goals.
   • Evan Farr is an experienced retirement planning advisor and long-term care financial advisor through his company Lifecare Financial Services, LLC (in business since 2006) and is highly knowledgeable about using annuities and other types of investments to provide safe retirement income and also helping to pay for long-term care using hybrid insurance policies and asset-based policies that combine life insurance or an annuity product (or both) with a long-term care benefit and using tax-free money (money in your IRA, 401(k), 403(b), or Thrift Savings Plan) to help pay for long-term care.
   • Our Retirement Planning Program is an educational program, personalized for each client, that Evan Farr has developed in conjunction with Protection Point Advisors (PPA), which is the Registered Investment Advisory firm with which Evan is affiliated, and Evan Farr’s insurance agency, Lifecare Financial Services, and its affiliated professionals.
   • Read more about Retirement Planning, Long-Term Care Financial Planning, and the “Six Pillars of Successful Retirement Planning” on our “Retirement Planning” page.

Plan in Advance for Peace of Mind

Whether your retirement is coming up soon or many years from now, it is important to protect your hard work and your golden years with effective retirement planning, including long-term care financial planning.

We here at the Farr Law Firm have strategies in place to help all types of people at all ages to plan for retirement, long-term care, Medicaid Asset Protection, Estate Planning, Incapacity Planning, and Elder Care planning. By planning in advance, each person can retain the assets it has taken a lifetime to accumulate and the peace of mind that their family’s needs will be adequately and properly addressed. Contact us to make an appointment!

Estate Planning Fairfax: 703-691-1888
Retirement Planning Fredericksburg: 540-479-1435
Long-term Care Planning Rockville: 301-519-8041
Elder Care Planning DC: 202-587-2797