Retiring is a major decision in anyone’s life. As the average retirement age continues to go up, we are being forced to reassess our future. What is retirement? What does it mean to be happy in retirement?
Retiring is one of those things that many of us look forward to in our lives but for some, exiting the workforce can be a traumatic experience, often times leading to boredom and a loss of a sense of self. After all, most people start working in their late teens or early twenties, and for four decades, the only thing they know is getting up and going to another place to trade a lot of their time for a paycheck.
I don’t know about you but trading time for money has never really appealed to me. I suppose that is why I am looking for other ways to earn money online rather than entering cubicle land on a daily basis, which I have done for many years in the past.
All financial advisers will give you the same advice about retirement. Start saving early and make it a habit. We have all heard the “pay yourself first” advice and how automatic saving plans can compound over the decades. The earlier you start, the better.
This article is not meant to offer financial advice. I am not a financial planner nor do I want to rehash all of the standard advice most of us already know.
What I would like to focus on are some basic ideas of how and what you should consider as you approach retirement age. How and what you do leading up to your golden years can make a big difference on whether or not it is a happy retirement, or the opposite.
How Much do You Need to Retire?
That is a difficult question to answer because it depends on a lot of factors.
First, do you expect your lifestyle to change or will you continue to live and spend money as you did during your working years?
Retirement can often be a finanical shock to some people because they are receiving less in monthly income from social security and 401k payouts than their working salary.
If you have planned effectively over the decades, this monthly retirement income can be about the same as your working income, however, for the majority of Americans, they incur what amounts to a substantial pay cut once they exit the work force.
Therefore, when deciding how much you need to retire, you have to take into consideration things like is your home paid off, do you plan on owning a new vehicle every five to ten years or are you planning on traveling a lot.
In short, are you going to downsize your life, or will you continue on the way you have for decades?
What is the Social Security Full Retirement Age?
Again, the answer depends. For decades, it was 65 years of age for everyone; however it has been gradually going up to 67 years of age for people born after 1959.
But if you are reading this article because you are considering retirement, then you more than likely the full retirement age of 65 years old is still in effect for you.
The Social Security Administration allows you to retire before full retirement age beginning at age 62.
Most financial planners discourage this decision because you pay a price for claiming benefits a full four years early. Instead of your normal monthly benefit you have earned over the decades, you will receive 70% of that amount every month.
And that does not change to 100% once you turn 65. If you claim benefits early, that is the deal you are making; forgoing 30% of your earned benefit for those four years.
Given that people are living longer, most professionals advise not to do this if it is at all possible.
However, sometimes life throws us curve balls and people are no longer able to work for health reasons, or they are laid off with no prospects for another job at their age.
My dad started receiving benefits at age 62. He had been working in the trucking industry since he was 19 and was sick of it. There is quite a bit of difference between working a physically demanding job for decades rather than sitting behind a desk. So any retirement decisions must take into account those type of life scenarios.
No Jobs After Lay Offs
One of the reasons that the unemployment rate has remained high after the recession of 2008 is because many older Americans that lost their jobs simply could not get hired again, so they either stayed on Unemployment Insurance until it ran out, or filed for disability or early social security benefits.
If you are curious about how much monthly benefit you will receive from social security, there are two methods you can use.
First, the department sends an annual record of all of your earnings each year with an estimate of your monthly benefit if you never worked another day. This can be useful in accessing your future needs particularly if you have a decade a more left to plan.
Second, you can use a Social Security benefits calculator which will give you your projected benefit based on data you enter.
Both of these can give you an idea of what to expect before you apply for social security retirement.
However, do not rely on the Social Security program alone for your retirement income. With more and more baby boomers retiring, the workforce is shrinking, meaning that there are fewer and fewer working age people paying into the system.
As the pot shrinks, one of two things must happen. Either the retirement age must go up, or the monthly benefit calculations must be changed, and rest assured, it will not be to our benefit.
Facts About Social Security
How to Get the Maximum Social Security Benefit
If you take social security early, you will receive reduced benefits. The opposite is true if you wait.
For instance, for every year you delay claiming benefits up until the age of 70, you will increase your monthly amount by 8%. So if you want to do the math, that means that if you are in a healthy financial position when you turn 65, by waiting 5 years to claim benefits, you will increase your monthly payout by 40% over what you would have received at age 65.
If waiting until 70 sounds too much for you, even just waiting until you turn 66 will increase that monthly payout by 8%.
Social Security Benefits: Get More the Longer You Wait
If you can just hold out a couple of years after the age you are eligible to collect benefits, it will make a significant difference in the amount you receive each month.
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Medical Care for Retirees
One of the most important considerations for anyone who is about to retire is health insurance coverage. If you choose to retire early, you will have several years before you are eligible for Medicare. This can propose a challenge for some people with chronic health issues.
The good news is that with the Affordable Care Act, you cannot be denied health insurance because of a pre-existing condition so if you voluntarily leave your job, or are laid off close to retirement age, you can at least get health coverage until you are eligible for full Medicare benefits. For most people in this situation, their yearly income will be so low that they will be eligible for a subsidy for that insurance coverage.
In fact, one of the unforeseen consequences of the ACA of 2010 is that more and more people are retiring early, whether by choice or not, because they are now able to gap those crucial years after leaving their jobs until they are eligible for Medicare coverage.
If you are in this situation and the thought of not having medical coverage is what is keeping you from making a decision on retirement, understand that the game, and the decision process, has somewhat changed since the ACA has been phased in. You now options that did not exist a few years ago.
Consider a Phased Retirement
One other thing to consider is retiring in phases if possible. There are many situations that allow you to continue working even while you collect social security. There are limits on how much you can make without it affecting your benefit, but it is something to consider especially if your retirement income is going to be substantially less that your last salaried position.
For years, many made the joke about being a Wal-Mart greeter, however, I don’t know if you have noticed lately but those jobs are gone.
Do You Have a Post Retirement Plan?
After all of the financial considerations are taken care of, what are you going to do? How will you occupy your time?
For some, this is not an issue. They love all of their free time and the freedom to travel as they please.
For others though, it is much tougher. The concept of not having anywhere to go every day can be depressing.
Before you make any decisions on when and how to retire, imagine how your life will be when you no longer have a place to be every day. Only you can make this determination.
For some, it is a no-brainer, but for others, it is a difficult transition. Consider all of this before you retire. The first time you think about all of this should not be a month into your retirement, sitting in a chair watching Netflix.
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Retiring happy requires a lot of pre-planning and the earlier you start, the better. One of the keys in your early planning is making sound financial decisions particularly when investing in the stock market.
But focusing on monthly income is not the only aspect of a happy retirement. You also need to determine what type of lifestyle you want to have and how you will pass your time. Not only do you need to save and invest, but you also have to get control of your spending.
Most retired Americans earn much less that they did when they were of working age, so reassessing your life and needs in order to live a debt-free existing it a priority leading up to any major retirement decision.
Do you value money over your time? Do you love all of your things over peace of mind?
Retiring is a process of the mind, not simply filling out forms at your place of work or a government administration. Be sure that you understand all of the details of your decision before plowing ahead.
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