How do I know when to retire? (part 1)

Posted on December 8, 2015

Part 1: Three reasons to delay retirement

“When can I retire?” is an important question – and it’s one of the questions a financial adviser is most often asked by retirement plan participants.  A good adviser will respond by helping that person evaluate their financial situation and their retirement readiness.  But at Pension Consultants, we also encourage participants to ask a question that’s even more important.

Instead of asking, “When can I retire?”, the more important question is, “When is the best time for me to retire?”  Some people assume that as soon as you are able to retire, you should.  But that’s not necessarily the case.

Determining the best time to retire involves more than just your financial situation.  Your decision is also based, to a large extent, on your values – what’s most important to you.

In this first of two articles on the subject, we will look at three reasons you might want to delay retirement past the time when many of your coworkers have left the workforce:

Reasons to delay retirement

FINANCES:  To make your financial resources last longer.  If your projected income for retirement is coming up short, delaying retirement for a time can significantly extend the availability of your retirement savings.  (See the sidebar for more about the financial benefits of a delay.)

Making Your Financial Resources Last Longer

If you are falling short of your projected retirement income goal, one solution is to delay the day you enter into retirement.  Even a one-year delay can add a number of years of retirement income to your plan.

For example, one couple who planned to retire at age 65 was projected to run out of money at age 81½.  When they delayed retirement by one year, their funds lasted three more years – to age 84½.  And when they delayed two years, to age 67, their investments lasted past age 88½ — 7 more years!

Here’s why.  Each year you delay your retirement . . .

  1. You are giving yourself more time to set money aside for the future.
  2. You are giving your investments more time to grow, tax-deferred.
  3. You are eliminating one year of income that needs to be financed.
  4. You are reducing your taxes by saving with pre-tax money.
  5. You are increasing the monthly benefit you will receive from Social Security.
  6. You might be continuing to receive health insurance coverage through your employer.

This doesn’t mean everyone should wait as long as possible to retire – but there are some financial benefits to waiting if you need to!

FULFILLMENT:  To maintain a sense of purpose.  Pension Consultants gathered focus groups of retirees and asked them about the challenges they face in retirement.  The top answer we heard was that they had trouble maintaining a sense of purpose when they were no longer employed.  Continuing to work can help sustain a sense of purpose and value.

RELATIONSHIPS:  To keep up with friendships at work.  In our retirement workshops, we often ask participants what they will miss most about work when they retire.  Other than the money, the most common answer is that they will miss the people they work with.  Continuing to work, even part time, can help maintain those relationships.

Finances, fulfillment, and professional relationships are all good reasons to keep working.  Some people value these things, but they retire anyway and they’re miserable.  That’s because they retired from their work, but they didn’t retire to anything.

A man very close to me was a teacher and he was good at it.  The students loved him and he enjoyed his interactions with them and with members of the community, where he was a regular volunteer in various activities.  Then he stopped working.  He lost his sense of purpose, he was cut off from important relationships, and he was stressed financially.  His days consisted of watching TV and taking his dog outside when she needed a walk.  Unfortunately he passed away about a year ago both lonely and depressed.  He was a good man and he deserved better, but he retired too soon.

On the other hand, some people make the mistake of not retiring soon enough.  Watch for the upcoming conclusion of our discussion on “How Do I Know When to Retire?”, where we will look at three reasons you might want to retire sooner rather than later.

For help identifying your values and applying them to your retirement planning decisions, contact one of our Certified Financial Planner™ professionals at Pension Consultants at 800-234-9584.

Read part 2 >>

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PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.

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