AT What Age Can I Retire? The Financial Gurus Answer
Retirement might not be on the minds of people in their 20s or even their 30s, but there does come a time when everyone wonders: “When should I retire?”
Retirement readiness depends a great deal on how well you’ve prepared financially. But there are other factors to consider, including whether you want to retire at all. Nobody will force you to leave the workforce just because you’ve reached a certain milestone on your life calendar.
If you want to work and are able, retirement can come whenever you are financially and psychologically ready for it. If you can’t wait for retirement to begin, you’ll need to bring your A-game to prepare for it.
You can use a retirement calculator to assess when should you retire, or follow the advice of one of the financial gurus:
Financial Preparedness is Critical — Suze Orman Advices Being Conservative
There’s a short answer to when a person is financially ready to retire. But according to Forbes, there is a general guideline that’s called the “25 times” rule of thumb.
Using this method, you’re ready when your whole portfolio is 25 times larger than your first-year withdrawal will be after retirement. Because every situation is different, there’s no magic number, just a guide.
Suze Orman recommends being a bit more conservative. At her “Retirement Planning” page, she recommends planning for 30 years, not 25. And she also reminds that it’s important to factor in inflation and expenses that you might incur later in life, such as additional medication.
Retiring well might not require as much money as you think.
Early Retirement is Possible Says Dave Ramsey
With all of the talk about saving, investing, and improving your portfolio, many retirement planners think about savings far into the millions. While this is doable for some, it’s not actually necessary for everyone. And it can mean spending more years in the workforce than you have to, or want to.
Do you really need as much money to retire as you think? Maybe, but maybe not.
Dave Ramsey illustrates an early retirement scenario in his blog post, “Can You Retire 10 Years Early?” In his example, “Joe” can work until he is 65 years old, and could have $6.5 million from his $50k annual salary by regularly investing 15 percent in his 401(k) and Roth IRA.
But if “Joe” decides that retirement sounds like a better plan, he can retire at age 50 and take a 4 percent withdrawal, and still have an income of $80,000 annually without damaging his nest egg. And 4 percent will increase his income to account for inflation, still without cutting into the nest egg.
Financial preparedness is only part of what it takes to retire comfortably.
Portfolio Comfort is Pivotal
While saving for retirement, have you given much thought to managing money once you retire? It’s one thing to have enough, but it’s altogether something else to understand how your portfolio will work and how you’ll budget later.
Harold Evensky, of the Evensky & Katz firm, tells Advisor Perspectives there are risks involved when retirees don’t use their money the right way. People live longer, and they also stay healthier longer.
Evensky says that naturally means retirees are spending more money on the good things, such as vacations. But in the same breath, he also advises against being too careful and not enjoying retirement for fear of running out of money.
You already know how to manage your income, but money management changes once you are no longer receiving a paycheck. Saving and investing well helps determine when you are financially ready to retire. But learning how to manage money under a new set of rules is just as important.
When will you be ready to retire? The only person who can really answer that question is you. Your portfolio might be stellar, and you might also have acquired all the skills you’ll need for living in a world where there’s no employer to report to and no paycheck to cash. But emotional preparedness is another obstacle that some people aren’t ready to face.
If you’ve saved and invested enough to support yourself for 25 or 30 years past retirement, especially if your income leaves the nest egg intact, then retirement is ready when you are. And if you can’t imagine leaving the workforce unless you have no other choice? That’s OK, too.