Choose Your Retirement Date
As a young adult I watched insurance company commercials that offered investment programs for “Freedom 55”. Of course, I didn’t pay much attention then – all those smiling, grey-haired people wandering around on the beach – but now that I’m at that retirement age it’s looking pretty good.
How Do You Choose Your Retirement Date?
The problem that many people face is that they don’t know if they have the resources to be able to retire at 55, or even at the standard retirement age of 65. What happened to the time?
Like many people my age I am ready for a life of leisure but I worry that 1) I won’t have enough income to support myself and 2) that I’ll use up all the money I have invested too quickly.
Related: Why Baby Boomers Aren’t Prepared For Retirement
I have never worried about the effects of market fluctuations on my, mainly stock, portfolio as I was always receiving dividends regardless of the share price and total value. The thought of having to deplete my portfolio by selling the shares, though, bothers me. But I also don’t want to keep working until I’m 70!
Money and health are the two biggest concerns when it comes to choosing your retirement age. Not having enough money means extending your working career. Not having good health often puts an end to the amount of work you are able to do.
Statistics show that in 2006 over 300,000 Canadians between the ages of 55 and 64 had an average income of less than $7,000 because of a disability. If you’ve been laid off or “down-sized” and either don’t want to, or are unable to get another job because of age discrimination (it happens) you are forced into retiring.
Understanding Your Retirement Age
If you want to be happy you have to have a sense of control over the whole process. First figure out how much you’ll need to live on. A common guideline is 70% of your current salary, but everyone is different.
People think their costs will immediately go down but many retirees have a list of experiences they want to get on with – travel, new hobbies, etc – at least in the early years that can prove more costly than anticipated and throw your budget out of whack. At least most of your larger expenses – kids, mortgage – should hopefully be gone by this time.
Also, don’t overlook additional expenses you may not have thought of. You will be responsible for remitting your own income tax now, either monthly or quarterly. You may not need as much life insurance, but you may need long-term care insurance. You will have to replace your health care benefits if they were covered by your employer.
Next, figure out how much you’ll receive in monthly income if you retire. Calculate the benefits you know you’re guaranteed to receive such as CPP, OAS and any pension you may receive from your employers (but only if the amount is guaranteed, such as in a Defined Benefit Pension).
Don’t just rely on the figures given in articles and publications. They usually quote the maximum benefits available and that may not apply to you. Go to Human Resources and Skills Development Canada and order your CPP statement of contributions so you can calculate the numbers (also on this site).
Make Your Retirement Plan Unique
Once you come up with a figure you’d actually have to live on, you can cut back where necessary. Impossible, you say? Now you will know how much extra you will need. How much can come from investment income? Can you purchase an annuity?
How long will your capital last if you have to start depleting it? Do you need to save more? Work longer? Work part-time to supplement your income? Do the groundwork now so you won’t be surprised.
Don’t wait until you’re heading out the office door clutching your gold watch to develop some interests you can carry into retirement.
We’ve all heard about the retired husband who follows his wife around, offering “suggestions” and trying to help out but only succeeding in disrupting her routine until she’s ready to throw him out of the house.
Have the foresight to develop a hobby, find a place to volunteer, or whatever makes you smile.
Get a clear sense of what life will be like so you can focus on making good decisions when you need to. If you’ve been saving and planning for some time you may just need to tweak the plan a bit as you get closer to the date.
Retiring boomers aren’t just going to go pack a suitcase and quietly head off to Retirement Village. They are a new breed of retirees – independent, self-directed and determined to create new experiences for themselves for as long as they can – just as they always have been.
There’s a new type of long-term care policy that can protect your assets from Medicaid even after the policy runs out of benefits. These government-approved policies are like a traditional long-term care policy “on steroids”.
Here’s an explanation of how these policies work:
http://bit.ly/How-Partnership-Policies-Protect-Assets
Scott
Thanks Scott. Good to know.
Good article! I’m 52 and I also feel like the time has quickly passed us by. The kids are grown up now and this should be the time of our lives, but instead we are still paying off our mortgage and haven’t saved nearly enough for retirement or the kids education. Freedom 55 is out of reach for most people.
Hi Allan: I suggest you focus on getting your mortgage paid off as quickly as you can and become debt free. Then you can figure out what kind of income you can expect to receive and what your expenses will look like. We tend to think we need a lot of money to retire (courtesy of the financial institutions) but it can be a surprise to see how well we could manage with the resourses we’d have available.
I think 70% of your income is a bit of a stretch. After you get a few trips out of the way in the first few years you can probably get away with living on 50% of your income in retirement.
Just don’t forget to keep saving for home repairs or renovations, a new vehicle and the cost of spoiling your kids and grand kids.
Hi Harold: As per my comment to Allan, I think the 70% calculation comes from the financial institutions to get you to save more. A lot of people think that they’ll now have the time to pursue expensive hobbies – travel, golf, travelling to play golf, etc. but the truth is that that will diminish as the years go by and we pursue a simpler (less costly) lifestyle.
But I agree that life doesn’t just stop. You still need some savings just as you suggest.
Good post Boomer.
Hopefully my wife and I can get out of the rat race in 20 years, a few years before 60.
Continue to successfully be “Your Own Advisor” and you’ll make it. You still have a lot of time ahead of you to work your plan.
In this economy, for most folks, there is no retirement.
That’s a pretty defeatist view, Doable Finance and may be true for some – but I hope not for me.
Don’t forget about another important factor: Inflation.
Todays dollars will not be worth the same amount in the future. According to statistics, the average inflation over the past 30 years has been 3%/year. If this keeps up, the money you need to live off of now could be as much as doubled (or more, depending on your age) by the time you are halfway into retirement.
If you are 50+ now, and wanting to retire in the next 5-10 years, you won’t notice a ‘huge’ difference, but the numbers surely won’t be the same. When I was 10 years old I wanted $1million when I was old… it didn’t take me long at all to realize this would not be enough. By highschool I realized that small number wouldnt be enough (for me) but I was still unaware of what number I should ‘hope’ to reach.
Now that I am in my 20’s, not only do I have the knowledge to know roughly what I will need, but I also have the plan to reach it. Due to hard work and strict habits, I am happy to say I am well on my way to becoming financially independant!
I go into so much detail because I see there are 2 different major ideas about the amount needed at retirement. Why not just plan for the worst? Than when you are positive you have enough saved, than you can take it easy!
Hi Future Money-Bags: It’s refreshing to hear from someone in their 20’s who’s so focused on the future. You sound like you are well on your way. Keep up the good work.
Inflation does make a big difference, especially when you’re looking at 40 years down the road. That’s why it’s important to continuously monitor your plan to see if it’s still going to work for you and make adjustments.
Let’s first examine the retirement age issue. You cannot retire unless you solve for a maximum monthly income stream, yet make certain you never run out money in retirment (or your spouses retirement after your demise). Once, you solve both of these issues, then you can set a retirement date.
Since, I have invented income-recovery planning and have trained thousands of so-called financial planners. I would look beyond any advice from your local planners or knuckleads product pitching financial products. Go to my other website http://www.FixedAnnuityExpert.com to learn more.
Hi John B. Thanks for the info. You need to determine if you will have enough income so you can feel comfortable about setting a date.
Interesting article and more interesting posts. I agree with most the 70% figure is just a guess. If you are frugal and make $150K per year could be 30%. One thing that gets overlooked in retirement spending requirements is what you are spending prior to retirement. Every dollar you save prior to retirement helps in 3 ways. Your needs go down (there are lots of enjoyable things do to in life that don’t require a ton on money). You have more money to retire with. The saved money also earns money (although not very much with todays interest rates). Live within your means, in general borrowing should only be used for home. Save for the rest of the stuff instead of buy now and pay more later. Borrowing makes buying to easy. If you save the money first it is lot easier to see the effort required which make you think twice
Nice post!
Indeed money is an important issue when it comes to the retirement date. But the even more important one is, as you’ve mentioned, health. If you’re healthy you can provide for a quiet retirement period. Besides, if you also have a money producing hobby besides your main job, you won’t fear so much whether money will be enough after the official retirement.
I’m sorry but i find this comment incredibly sexist… you suggest that its only the hard working husbands who collect their golden watch, retire to the home with their already “at leisure” wife and happily annoy them. All financial information aside – this is entirely inappropriate and is insulting to not only “working outside of the home” women but also women who work very hard at home and neither get a golden watch or a retirement income! Please join us in the year 2011 where all women work regardless of location.
“We’ve all heard about the retired husband who follows his wife around, offering “suggestions” and trying to help out but only succeeding in disrupting her routine until she’s ready to throw him out of the house. Have the foresight to develop a hobby, find a place to volunteer, or whatever makes you smile.”
@Jennifer: I’m sorry you think I’m sexist. That comment about retired husbands is well known and probably more applies to my own parents generation but it still makes a point about having interests after retirement which was my intention.
BTW I’ve been the major bread winner for my family for over thirty years and my husband is at home.
I see time ticking away and I don’t know what to do about it. I left the retirement issue up to my husband who did little in this area and now we are splitting up so I guess it’s up to me. I’ll be working a lot harder making an income for the kids and myself as well as work independantly now for planning my retirement. Thanks for the information.