Delayed gratification – putting off an immediate reward for the promise of a bigger reward later is a great way to exercise patience and self-control and strengthen will power. When it comes to your retirement and the best retirement age, delaying that date for a little while often makes great financial sense.
First, postponing retirement allows you to add more to your retirement savings, which is even more valuable if they’re in tax-deferred accounts and your employer is contributing. And second, pushing back a retirement date delays the point at which you’ll start drawing down those savings.
It’s important to explore why age is so important, because you might wonder if 5 or 10 extra years of employment can really make such a critical difference in your long-term financial health.
Supercharging Your Savings
The fact is that those extra years can make a difference, and here’s an example of how much: Let’s say you are pondering retirement at 55, but instead, you delay until 65. If you put away an additional $20,000 per year in your 401(k), and that money earns an average 8% return, you’ll add nearly $313,000 to your retirement. Since this is a hypothetical, actual investments might earn more or less, and you would also need to factor in any applicable fees or expenses. Still, it’s a glimpse at what a 10-year postponement can do to your savings and may make you think more about timing.
Even if you don’t factor in an extra decade of contributions, simply not drawing down retirement savings then will give you a bigger reserve to make that retirement much more comfortable when it does come.
Let’s look at the pros and cons of retiring at the most common retirement age milestones to get a better sense of what might be the best retirement age.
Retiring at 59½
This is the youngest age at which most people explore retiring, as it’s the earliest you can draw money from an IRA without penalty. There are restrictions, including if you’re using a Roth IRA, and you can access savings but not earnings. With any IRA, you’ll owe federal income tax on the withdrawals.
- The pros: You can jump-start retirement before you’ve entered your golden years. While 59½ isn’t typically considered “early,” it’s years ahead of when most people consider it. Just 10 percent of the workforce plans retirement before 60, according to a U.S. News & World Report analysis.
- The cons: You’ll have to pay for medical coverage until you’re eligible for Medicare (see Retiring at 65, below). You’ll likely draw down your savings more heavily for a few years, until you’re eligible for Social Security. And you’ll dramatically reduce potential savings and earnings from pressing on for a few more years.
- Who should consider it: This may be a good fit if you’re eligible for a company retirement benefit that includes a health plan, or if you’re married to someone who plans to keep working and can cover you on their insurance until you’re Medicare-eligible. If you’ve done a great job of putting money away, you may have a large enough savings pool to explore a pre-60 retirement.
Retiring at 62
- The pros: At 62, you’re eligible for Social Security (though at a reduced level), meaning you can be hands-off with more of your retirement savings until later. You’re still retiring at an age considered by most people to be ahead of schedule.
- The cons: Taking Social Security before full retirement age, at 66 or 67, reduces your payments. You’ll be denying yourself pre-tax savings and investments from your high-earning years. You’re still three years from Medicare eligibility and will need a bridging health-care solution.
- Who should consider it: Again, this might be the best retirement age for those with a large retirement savings portfolio – though the threshold is lower than someone younger, thanks to Social Security help – and those with health coverage via a spouse. (Note that there are additional health care options for the post-work pre-Medicare years, as Forbes outlines.)
Retiring at 65
- The pros: You can use Medicare for health insurance at age 65, so you can divert the money you’ve been paying for health coverage to other cost-of-living expenses and withdraw less money from retirement savings.
- The cons: You’ll begin pulling money from your retirement savings.
- Who should consider it: With health care shifting to Medicare and Social Security providing a steady supplement, this is a good age for many. But if you’re still enjoying work, putting it off for another year or two can further boost savings.
Retiring at 66-67
- The pros: You’ll receive maximum Social Security benefits at either 66 or 67, depending on your year of birth. Earned income no longer affects Social Security benefits.
- The cons: Some people will miss working or their professional network. Outside of financial readiness, ensure you’re emotionally ready to retire.
- Who should consider it: Aside from putting more in retirement savings, there aren’t any other financial benefits to postponing retirement. But for those who started late or didn’t put enough away early on, late-career savings can have a big impact.
The Bottom Line
No matter what you decide is the right age for you to retire, you can be better prepared to live off those savings if you fully understand the impact of your decision.
Through consultation, the retirement specialists at Wickham Financial & Insurance Services can guide you by analyzing your retirement savings and working with you to develop a plan that helps to ensure you are saving enough to live comfortably and fully enjoy your retirement.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Wickham Financial Group, Inc. dba Wickham Financial & Insurance Services employees providing such comments, and should not be regarded as a description of advisory services provided by Wickham Financial & Insurance Services or performance returns of any Wickham Financial & Insurance Services Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Wickham Financial & Insurance Services manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Wickham Financial Group, Inc. provides links for your convenience to websites produced by other providers or industry related material. Accessing websites through links directs you away from our website. Wickham Financial Group, Inc. is not responsible for errors or omissions in the material on third party websites, and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites.