Patrick S. O’Connor: When is the right time to retire?
For many Americans, careers no longer carry an expiration date that coincides with a 65th birthday. Leaving the workforce and a steady paycheck to rely on entitlement benefits and retirement savings can seem daunting in the face of uncertainty regarding federal and pension checks, a tricky equities market and the potential to live another 30 years.
So, when is the right time to exit the workforce? These days, there’s no benchmark. You have to talk to your family, your financial adviser and your accountant before you make decisions or set expectations. Only after you do that will you be able to make the right decision for your situation.
You should focus on three areas before you circle a date on your calendar:
Step 1: Have the right conversations. Retirement, generally speaking, is a shared reality, not an isolated fantasy. You may want to wake up in a different state every morning, while your spouse wants to see your grandchildren off to school daily. It’s important that you and your life partner are on the same page before you get your heart set on a particular version of the future.
It happens a lot. Couples can mentally be retiring to separate countries and not even know it. If you’re married and you want a happy retirement, make sure it’s one your spouse wants too.
That’s not to say singles are off the hook. Anyone who plays a key role in your life and who is likely to be affected by your decision to retire – a parent, sibling, child, close friend – is someone you need to speak with about what that’s going to mean.
If you haven’t already started working on your retirement plan, it’s time to start defining and prioritizing your goals and exploring what it would take to achieve your ideal and acceptable scenarios. Ideally, you’ve been checking up on your progress toward retirement at least annually.
Step 2: Run the numbers. Start to talk with your adviser about your potential retirement date as early as age 50. If you give yourself enough time to plan, you’ll have a good shot at realizing your desired retirement date.
One reason some workers are choosing to postpone retirement: fear of outliving their savings. To support financial longevity, I recommend factoring into your retirement-date scenarios how long it will take you to reduce debt, whether credit cards or mortgages. Having lower fixed expenses during retirement, such as debt payments, can give you much greater flexibility.
Step 3: Make health care a priority. Even though your monthly living expenses may drop during retirement, your health care costs are likely to increase. Your employer will no longer be paying for your health coverage, and the simple fact of aging probably means more visits to the doctor. Specialized medical care may also come into play, including visits to specialists, surgeries and recuperative care assistance.
Understanding how you’ll pay for health coverage outside employment starts with a careful review of your benefits, including Medicare coverage and options for Medigap insurance.
Once you understand the limitations of these programs, you and your financial adviser can hold a more informed discussion about the need for additional coverage, such as long-term care insurance.
The premiums will be part of your new monthly budget – and therefore will need to be factored into your income stream calculations. The costs associated with health insurance can be significant, which is why it’s important to plan for them.
No matter when you ultimately decide to make the final career change, the sooner you start working on a retirement date, the more likely you are to exit the workforce on your own terms. You have a really good shot at spending your days as you want to. It comes down to pragmatic planning and follow-through.
• Patrick S. O’Connor is the managing principal, senior financial adviser, PIM portfolio manager and a chartered retirement planning counselor at Wells Fargo Advisors Financial Network in Algonquin. Reach him at 847-458-0142, email@example.com or www.algonquin.wfadv.com.