The 'Couv'

The 'Couv'

Tuesday, August 27, 2019

What's a Good Age to Retire?

This can be a very challenging decision. The answer is likely different for each individual or couple. Sometimes life makes the decision for you, perhaps one becomes unable to continue their career due to physical limitations. Sometimes one is just tired and ready.

Choosing the right time can be a very important decision, however as no one has a crystal ball to peer into the future. The old adage that says, "hope for the best but prepare for the worst", is wise advice. Age and health aside there are some real financial considerations before giving yourself a self imposed pink slip.

If there is a pension involved then sitting down with a pension expert is important. One must fully understand the terms of the pension and the difference between early retirement and full retirement can be dramatic. One must consider their healthcare situation. Does the company provide full or partial healthcare in retirement, have you qualified for it, is there a minimum age to get it?

Many people choose to retire at 62 and take the early Social Security path. There are some real disadvantages to this. Now someone that is disabled or truly unlikely to have any significant earned income is really only taking a monthly payment hit by retiring at 62 instead of the "full" retirement age that is somewhere between 66 and 68 depending on your current age. If you are planning on having some earned income after "retirement" the government will dip into that and even tax some of your Social Security as a penalty. Check with your tax pro to see how this works, it is very important. Once you reach the "full" retirement age then you can collect your Social Security and make as much money as you want. Of course Uncle Sam will tax your earned income accordingly. Again, check with a tax pro about these and other financial income and taxation issues. 

Those with a 401k type account have other issues such as the early withdrawal penalties if you take money prior to the minimum age of 59.5 years, and mandatory withdrawals at 70.5 years of age. All of this plays into the income picture.

Healthcare is pretty important. I know people who have retired at 62 but had to pay through the nose for health insurance for three years until they qualified for Medicare which kicks in at age 65. Medicare does not cover 100% but it is pretty easy and fairly cheap to get Medicare Supplement Insurance to take care of the 20% co-pay. Choosing to retire before age 65 without a good healthcare plan can be very dangerous.

Keep in mind that Social Security and Pensions do not always keep up with your cost of living. Often they are connected to a national metric like CPI or something. Your personal cost of living due to health or other unique conditions could easily outstrip your fixed income sources even if they have an inflation adjustment.

Be very slow and methodical about the process of retirement. It is easy to retire it is very hard to un-retire. Remember too that where you live can be just as important and Washington State is a great place to retire with no state income tax and an excellent health system.   

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