The traditional model of retirement - working at the same career, even the same company,…
Picking the optimal retirement age is a complex balancing act among several factors. On the one hand, you want to leave the 9-to-5 life while you’re still young enough to enjoy your golden years. But you also want to make sure your savings are enough to last through your retirement and to fund the lifestyle you want. Statistics show the majority of workers retire much earlier than planned.
Age 65 is traditional retirement age, and many workers aim to stay on the job until then. A recent study by the Employee Benefit Research Institute (EBRI) found that the median age at which working Americans expect to retire has remained at 65 for a couple of decades.
One good reason is that’s when you become eligible for Medicare. Most people can sign up for Medicare at age 65, with reasonable premiums and co-pays, regardless of health. When you’re eligible for this government-subsidized health care, you no longer need to stay at a job just for the employer-sponsored health insurance.
But the reality is, most workers end up retiring earlier than they plan. The median retirement age among retirees is age 62, according to a Gallup poll. And this actually represents an increase – for most of the early 2000s, the average retirement age was 60.
The EBRI study found that 36 percent of workers expect to retire after age 65, but only 14 percent of retirees report having worked that long. Just 9 percent of current workers say they are planning to retire before age 60, but 36 percent of retirees say they actually left the workforce that early.
As these studies show, many workers end up retiring years earlier than they expected. The main reasons for early retirement are health or job loss. Over half of retirees left because of a health problem or disability or to care for a spouse or other family member, the EBRI study found. Other retirees lost their jobs due to changes at their company, such as a downsizing or restructuring, changes in the skills required for their job, or other work-related reasons.
So you will need to prepare for a retirement that may come earlier than you might think. This means you’ll need to be flexible and adjust to changing circumstances. Your savings, pensions, and Social Security will have to cover your expenses and support your lifestyle.
Although Social Security benefits aren’t huge – the average benefit was $1,282 per month in December 2014 – it comprises a major source of income for many retirees. Social Security payments make up at least half of the retirement income of 65 percent of retirees and comprise 90 percent of retirement income for over a third (36 percent) of retirees.
If your savings are less than what you’ll need, you will have to develop another source of income such as part-time employment. If you retire before you are Medicare-eligible, you’ll need to find health insurance to fill the gap. Many workers who aren’t prepared for these expenses expect to simply continue working, but as we’ve seen, this is not always an option.
You might consider relocating to another part of the country with a lower cost of living and tax structure, or even to a foreign country. Many foreign locations provide a comfortable lifestyle and have lower food, entertainment, and health care costs than the U.S. The costs of moving might be recouped with lower living expenses.
You will also need to be prepared psychologically. Like all major life transitions, retirement takes some getting used to, and even involves a certain amount of stress. When it happens unexpectedly, even more adjustment is needed. You will need to be prepared for this situation, and have a plan to deal with the financial and personal consequences.