When to Retire? How to Pick the Right Date

When to Retire? How to Pick the Right DateAre you trying to figure out when to retire? You’re not alone. One of the most difficult retirement decisions can simply be choosing when to start. There are so many factors to consider: savings, career goals, retirement goals, health, taxes, Social Security, and Medicare (just to name a few), that it can feel overwhelming.

Where to begin? Here are a few tips:

Tip 1: Create a Financial Plan and Budget

A first step is to use an online retirement calculator/planner to get a ballpark sense of your finances. Most banks and financial institutions, such as Vanguard and Fidelity, offer these free to clients. They’ll guide you step-by-step through a process that will ultimately figure out how long your savings will last and how much money you’ll need to reach a target retirement date.

Our advice is to cross-check the results across multiple websites, since different organizations use different inputs and formulas to calculate their dates. Here are a few free tools beyond those offered by the banks: CNN Money | AARPSmart Money | Ballpark Estimate.

Remember though that finances are just as much about spending as saving. Often online calculators assume that you’ll be living a similar lifestyle post-retirement that you are living pre-retirement. Of course, this often isn’t the case. You may be planning on downsizing your home or traveling more or eating out less. To get an accurate sense of your future costs, sit down and make a detailed retirement budget. Here are a few tools to get started: Microsoft Office Templates | Consumer Reports.

One important thing to note is that online tools are great, but they still can’t replace talking with a knowledgeable financial advisor. Retirement planning is complicated, and often websites don’t take into account things like personal circumstances or recent changes to government programs. Many employers and community organizations offer free or discounted access to a financial planner. Take advantage if at all possible. If you’re looking to find one on your own, a good place to start is the Certified Financial Planner official website.

Tip 2: Do Your Homework on Government Programs and Regulations

In the past, picking a retirement date for Americans simply meant waiting until 62, when Social Security kicked in. These days it’s much more complicated. A lot of your retirement decisions may depend on how government programs and regulations will impact your income and health insurance coverage.

Take some time to understand the costs and benefits of taking Social Security early versus later, as well as what exactly happens when Medicare starts. Also, make sure you know how your  IRA works and how things like the required minimum distribution will affect your budget.

The government offers some good getting started information on various websites, including SocialSecurity.govUSA.govMyMoney.gov, and Benefits.gov. Also, this overview on About.com is a good starting point.

Tip 3: Think About More Than Money

Yes, finances are probably the most important factor in picking a retirement date — but they’re not the only thing. Too often people plan for how they’ll spend their money in retirement but don’t plan for how they’ll spend their time.

Before you settle on a specific year or month take some time to think about what makes you happy. Do you like your job? Do you enjoy the challenges and camaraderie? If so, then you may want to consider working longer. It may be just as good for your mind as for your bank account.

On the other hand, have you always wanted to take up a specific hobby, travel to a certain place, or volunteer with a particular organization? If so, make sure that your retirement plan accommodates that. Take a hard look at your budget, it may be possible to cut back expenses to give you more time to live your dream.

Photo by Dan Moyle via Flickr.