The Most Meaningful Ways Your Retirement Age Affects Your Retirement Lifestyle
“When can I retire?” For many Americans, it’s a matter of when they can afford to. Clearly, retiring sooner than later affects your finances. But some of the reasons why are more obvious than others.
For example, you may already know, the later you claim Social Security retirement benefits, the higher the monthly payments will be. Do you also have a pension? Most pensions pay out based on your “high 3,” or highest three earning years. So, you may score more by delaying retirement a year or two.
There are other, less-familiar financial considerations that can make an even bigger difference to your retirement lifestyle, including healthcare costs, and saving/withdrawal strategies.
Healthcare Costs: Are you really prepared to foot 100% of your medical insurance premiums if you retire before age 65 (when you’ll qualify for Medicare)? You may realize you’ll experience a lapse once your employer’s insurance coverage ends and before Medicare begins. But you may not realize that medical premiums can easily cost $2,000/month per couple or $24,000/year. If you retire at age 55, that’s almost a quarter-million dollars in premiums alone before you qualify for Medicare.
Saving and Withdrawal Strategies: Once you retire, how much can you reasonably withdraw from your retirement portfolio? How soon you retire injects two tricky variables to the decision. First, an early retirement reduces the number of years available for saving and investing for retirement. Second, it increases the number of years you should expect to withdraw and spend in retirement.
Let’s say you plan to retire at age 67, and your life expectancy is 92. That’s 25 years in retirement. If you wait until age 69 to retire, you have two extra years to add to your retirement portfolio and two fewer years to take from it. In this scenario, you should be able to withdraw 28% more per year from your savings in retirement.
Would a 28% increase in your retirement “paycheck” meaningfully enhance your retirement lifestyle? Postponing retirement isn’t ideal for everyone. But do consider all the numbers before deciding whether an early retirement is ideal for you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.