Though the typical U.S. worker retires at 63, a growing number of seniors are postponing retirement in an effort to grow their savings. While there’s no such thing as the perfect retirement age, there are a few milestones you should know about to help guide your decision:
- Age 59 1/2 is the earliest age you can take penalty-free withdrawals from a traditional retirement savings account, such as an IRA or 401(k).
- Age 62 is the earliest age you can claim Social Security.
- Age 65 is when you first become eligible for Medicare.
- Age 66 is your full retirement age for Social Security if you were born between 1943 and 1954.
- Age 67 is your full retirement age for Social Security if you were born in 1960 or later (those born between 1955 and 1959 are eligible for full Social Security benefits somewhere between 66 and 67).
- Age 70 is when you’ll stop accruing delayed retirement credits for holding off on Social Security.
- Age 70 1/2 is when you’ll need to start taking required minimum distributions from your traditional IRA or 401(k).
With these key ages in mind, here are three questions that can help guide your decision on when to retire.
1. How’s your health?
Though some living expenses tend to go down in retirement, healthcare is the one spending category that’s almost guaranteed to go up. It’s estimated that a healthy 65-year-old couple will spend a whopping $377,000 on healthcare over the course of retirement, and if you have a known medical issue, your costs could climb even more.
For better or worse, your health is bound to play a role in helping you arrive at the right retirement age. If you’re approaching retirement with chronic health issues and don’t have a lot in the way of savings, it pays to consider holding off until age 65 at the very least, since at that point you’ll be eligible for Medicare. Now keep in mind that Medicare is by no means free, and some enrollees spend a small fortune on out-of-pocket healthcare expenses despite having coverage. But generally speaking, it’s cheaper to get on Medicare than it is to purchase private insurance, so if you can wait until age 65 to retire, you’ll (somewhat) lower your costs.
2. How’s your job?
Some people enjoy going to work, while others find it tiring and stressful. If you’re an older worker and fall into the latter camp, you’re probably more likely to retire early. A new study by the University of Michigan and the Rand Corporation found that low stress, stable responsibilities and demands, and the option to transition to part-time status all lend to employees working longer. If your work-related duties aren’t causing you an undue amount of stress, and your job isn’t negatively impacting your health, then it pays to stretch your career as long as possible.
Doing so will benefit you in several ways. First, the longer you work, the shorter a retirement you’ll need to fund, which means whatever savings you’ve amassed will go even further. In addition, because most people earn more money at the end of their careers than at the beginning, working longer offers a great opportunity to sock away extra last-minute cash.
When you contemplate your retirement age, consider how happy or unhappy you are at work, and how much longer you think you can uphold your current routine. Remember, too, that working doesn’t have to be an all-or-nothing prospect. If your company offers part-time opportunities, you’ll get the best of both worlds — a steady income with added free time.
3. How will you fill your days?
The way you plan to spend your retirement will inevitably have an impact on how much money you’ll need. As you attempt to nail down a retirement age, think about how you want to spend your days as a senior. Will you be content staying local and keeping busy at home, or will you quickly grow restless without a constant stream of travel and entertainment? If it’s the latter, then you might consider delaying retirement a few more years and saving enough to sustain that sort of lifestyle.
Keep in mind that if you’re the type of person who gets bored easily, you may wish to postpone retirement even if your nest egg is already substantial. Countless retirees fall victim to depression, so if working longer gives you a reason to get up in the morning and serves as a social outlet, it pays to keep doing it, even if you don’t really need the money.
As you map out your retirement plan, think about not just how much money you have saved, but the role your health, job, and personality will play in your decision as well. Though adequate savings are essential to a happy retirement, there are other factors that will ultimately help you arrive at the right choice.