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Home>Daily Capital>Retirement Planning>When Should You Retire?

When Should You Retire?

When should I retire? What is the average retirement age? Those are questions most of us will ask ourselves at some point in life.

A recent study shows that with the COVID-19 pandemic, many people have adjusted their retirement timeline.

For the majority of people, retirement is something you achieve in your sixties or later after spending four decades or more working. But in recent years, the FIRE movement, which stands for Financial Independence Retire Early, has gained momentum with people leaving the workforce younger to enjoy a slower-paced lifestyle.

But how does one determine when to retire? How do you prepare for retirement? What are the pros and cons of traditional vs. early retirement?

Finding the Best Age to Retire

The traditional retirement age is around age 65. However, the best age to retire does not exist. When to retire is a personal decision that depends on individual preparation. But have you ever taken the time to determine what retirement looks like for you?

The right time to retire depends on if you have enough money invested in sustaining your retirement expenses.

A great way to start is by estimating your retirement number and working backward from there.

Tip: Use this free retirement calculator to see if your portfolio is likely to support your retirement goals.

How Age Affects Retirement Savings Income

Even though there’s no perfect age to retire, the earlier you start to invest for retirement, the better off you will be due to the effects of compounding returns. Indeed, by starting early, you’ll likely need to invest less towards retirement because your investments will have more time to accumulate earnings in the stock market.

Read More: Why To Start Saving For Retirement In Your 20s

However, there are incentives to encourage you to invest in your retirement age even if you start later in life. There are tax-advantaged retirement accounts that allow you to contribute more towards your retirement when you are 50 and older. For instance, the 2022 maximum annual employee contribution limit for 401(k), 403(b), most 457 plans is  $20,500, but there’s also a $6,500 catch-up contribution for any plan participant who is 50 and older.

Read More: How 401(k) Catch-Up Contributions Work

Another way age affects your retirement is when it comes to social security benefits. There’s a concern that depending on when you retire, you might not get many benefits from Social Security. According to a 2020 Social Security Administration Trustees Report, by 2034, payroll taxes which provides most of the money for social security benefits is only expected to cover 78% of scheduled benefits.

In addition, even though social security benefits eligibility starts at age 62, to maximize your social security benefits, you should wait until age 70 to take social security benefits. Postponing taking Social Security until age 70 makes your monthly benefits 32% larger than it will be at your full retirement age.  Keep in mind this is dependent on health and longevity factors as well, which is unique to each individual.

Pros and Cons of Retiring at Different Ages

No matter what age you retire, there are benefits and drawbacks to the various options. There are some aspects to consider.

Pros and Cons of Early Retirement 

Early retirement is when you retire before the traditional retirement age, which depending on when you were born, can be age 65, 66, or 67.

The common perception is that retirement is something a person does in their older years – sixties or later. But, with the rise of the FIRE movement, more people are considering retirement at a younger age. The FIRE movement encourages people to become financially independent by generating enough passive income at a younger age to cover their expenses.

Read More: How I Reached Coast FIRE While Raising 3 Kids

There are pros and cons associated with early retirement.

The most vivid argument for early retirement is not waiting until you’re older to slow down in life, travel the world, and take on any other projects instead of when you’re younger and most likely healthier.

With early retirement, you can enjoy a more relaxed life while you’re younger.  

Slowing down can positively impact your health, especially if you usually work long hours.

However, retiring early can be a challenging social adjustment, especially if your friends are still working. It also requires a more aggressive financial plan before 62; social security can’t be part of your retirement plan.

In addition, with early retirement, you must anticipate higher healthcare costs than you would pay in an employer-sponsored healthcare plan as you need to be 65 to be eligible for Medicare. Therefore, your early retirement plans must include a thorough analysis of healthcare costs and include the higher expense in your budget.

When you retire early, you also have to save money to last a longer time period, which adds additional pressure. For instance, when you retire at 65, you may be able to make 30-year retirement plans to 95, but if you were to retire at 55, your plan would add another ten years.

Pros and Cons of Retiring at the Traditional Age

When you retire at a more traditional age in your mid-60s, you have more years to contribute towards retirement and accumulate compound interest.

When you enjoy your job, you may not be eager to retire at the traditional age and might consider a late retirement.

However, the older you are, the more likely you are to have health issues at retirement that may negatively impact the quality of your retirement. But for other people who may not have started investing in their retirement early or may be facing financial hardships, delayed retirement is the only option.

Retirement Milestones

There are a few milestones to keep in mind as you plan for your retirement.

At age 55, you are eligible to start withdrawing your retirement plan savings without penalty if you leave your job or retire.

At age 59 ½, you can make withdrawals from qualified IRAs without incurring penalties from the IRS as long as the plan allows it.

At age 62, you’re eligible to start receiving Social Security benefits. However, if you elect to receive your benefits this early, the benefits will be reduced to approx 75% of what you would have received at 70.

At age 65, you are eligible for Medicaid coverage.

At age 66 or 67, you’re eligible for full retirement benefits, depending on when you were born.

70 is the latest age to start receiving social security benefits.

By age 70 ½, or 72, you have to start taking required minimum distributions from tax-deferred retirement accounts, depending on when you were born.

The Bottom Line

There’s no ideal retirement age.

Traditional and early retirement both have pros and cons. You have to look at your situation and decide which option is more appealing – and feasible – in your life.

However, an alternative option to consider is semi-retirement: cutting back hours to do something different. It can allow you space to spend more time with loved ones, pursue a different career path, work on a passionate project, or start a business without the pressure of replacing your full-time income.

Preparing for retirement is part of your overall financial plan. You can take a few actions now to get yourself on the right track.

  1. Download 65 Ways to Retire Smart, an actionable guide with insights from fiduciary financial advisors. The guide is free.
  2. Sign up for the Personal Capital Dashboard. Millions of people use these free and secure professional-grade online financial tools. You can use them to see all of your accounts in one place, analyze your spending, and plan for long-term financial goals.
  3. Consider talking to a fiduciary financial advisor for more detailed guidance on your retirement saving strategies.

Get Started with Personal Capital’s Retirement Planner


Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.
Anne-Lyse Wealth is the founder of Dream of Legacy, a platform dedicated to inspiring millennials to build wealth with purpose. She is a financial coach and a Certified Public Accountant. Anne-Lyse is the author of "Dream of Legacy, Raising Strong and Financially Secure Black Kids," and the host of The Dreamers Podcast. Her work has been featured in Business Insider, NextAdvisor, Time, and other publications. Anne-Lyse lives in Atlanta with her husband and three kids.
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