As you near the end of your career, do you know when to retire? If not, you aren’t alone. This is a question that many people struggle to answer throughout their professional lives. In fact, the answer is different for everyone.
Generally, the best time to retire is between the ages of 62 and 70. According to the U.S. Census Bureau, the average Retirement age in America today is 63. However, retiring this early will greatly affect your Social Security and Medicare benefits. Read on to learn more about this important decision.
Factors That Determine When to Retire
There are a variety of factors that you will need to consider before determining your retirement age. For example, these include:
- Where you live: The cost of living in your state should factor into your decision. The higher the cost of living, the more you’ll need to save for retirement. For instance, popular retirement states due to low taxes include Georgia, Texas, North Carolina, South Carolina, Florida, California and Arizona. You can also consider moving abroad and retiring in Mexico.
- Personal interests and expenses: Do you plan on being more active in your retirement or are you downgrading significantly? This will determine how great your nest egg will need to be.
- Health: In some cases, your health may require you to retire much earlier than you would prefer. You should also factor in future healthcare costs you may incur later in life.
- Social Security and Medicare: This will undoubtedly be the key factor behind your decision.
You can take advantage of retirement benefits by remaining active in the workforce for a few extra years. While this isn’t possible for some individuals, it’s a great opportunity for those who have less financial resources.
Understanding Social Security Benefits
According to the National Bureau of Economic Research, retirement improves both your health and life satisfaction. Unfortunately, this isn’t true for everyone. Those who can’t afford retirement often fall victim to further financial hardships. This is why it’s so important to understand the benefits of Social Security and Medicare as a retiree.
You become eligible for Social Security at the age of 62. However, you won’t qualify for the full monthly benefits until 66 or 67. Anyone born before 1955 can receive full benefits at 66 years old. Anyone born after 1955 may have to wait until the age of 67.
If you claim your Social Security Benefits at the age of 62, you will only receive 75% of the amount you could receive by waiting a few years. This not only affects you, but also your spouse. Your spouse will only receive 35% of your full Social Security benefits, instead of the 50% if you wait.
Medicare Benefits for Retirees
Medicare benefits work differently than Social Security. For starters, you aren’t even eligible until the age of 65. If you retire earlier, you will likely face much higher premiums and out-of-pocket costs for health insurance. Deciding when to retire may come down to this important health benefit.
There are two types of Medicare benefits: Part A and Part B. Medicare Part A is premium-free for individuals who have worked for at least 10 years while paying Medicare taxes. If you haven’t, you may have to pay a monthly premium of up to $437, according to eHealth.
Medicare Part B requires a monthly premium. That premium can be affected by your income. In general, this premium is usually taken out of your Social Security benefits each month. According to the official government site for Medicare, the Part B premium can go as high as $491.60, depending on your past income.
You can also sign up for supplemental insurance that covers more out-of-pocket costs along with Medicare. Both Part A and Part B will cover medical services such as surgeries, preventative care, and any costs relating to treatments and recovery from serious illnesses.
Financial Outlook for Retirement
This question is the key to everything when it comes to retiring in the U.S.: Do I have enough money to sustain my needs throughout the rest of my life? This is the part of the equation that cannot be a guessing game.
Overall, it’s important to have at least 25-times your annual expenses in retirement funds, minus your Social Security benefits. Unfortunately, the earlier you retire, the more you will need.
But, that is just the beginning. You will also have to maintain a financial plan that maps out your monthly cash flow. Once you hit retirement, you are no longer receiving paychecks every other week. Furthermore, your bills will continue to pile up. To determine your monthly financial plan, you will need to consider:
- Minor and major expenses
- Spending history
- Levels of debt before retirement
- Taxes, such as those with traditional IRA withdrawals
It’s important to analyze each category and map out your financial plan. This includes inflation rates, which are historically around three percent.
Knowing When to Retire and Sticking to It
Long days at work may feel even longer as you get older. But this doesn’t mean you are ready to retire. And don’t force yourself into retirement simply because you have reached that age group. If you are completely content and enjoying your job, there’s nothing wrong with staying in the workforce. Not only will this keep you active, but it will also save you more money.
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Knowing when to retire has become formulaic. There are so many moving pieces and determining factors that it’s overwhelming for most people to tackle on their own. Utilize our resources at Investment U today and go into your retirement without any financial worries.
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