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Setting Your Retirement Date: Are You Too Late or Too Early?

How much thought have you put into your retirement date? If you said “not that much,” then you are in good company. Most people simply assume they’ll retire whenever they become eligible for Social Security benefits. However, it doesn’t have to be that way. There’s a lot more that goes into retirement planning than just your age.

According to a study conducted by Columbia Business School’s Center for Decision Sciences, the act of thinking about the advantages of retirement can actually help you retire sooner. What’s more, it can put you on the path to becoming better prepared. In other words, your mindset can play just as big of a role in the success of your retirement as how much you have saved in your nest egg.

In this post, we’ll explore how you can determine your retirement date, and how you can use that date to stay motivated — both mentally and financially.

What Will You Do When You Retire?

Stop and think to yourself: What will I do when I no longer have to work?

There are, of course, easy answers like “sleep in” or “play golf every day.” Beyond that, this question is often hard for most people to answer. This question is especially difficult for those who have not previously thought about it. In fact, it can even lead to feelings of hesitation or avoidance. If what you know best is working, how can you imagine life without work?

This is a common phenomenon noted by author Nancy Schlossberg in her book Too Young to Be Old: Love, Learn, Work, and Play as You Age. People struggle to move on to that next phase of life because they see their job as their identity. They believe that “I work, therefore I am,” and its plaintive corollary, “Without work, what am I?”

This is why having a clear vision of life in retirement can be helpful. It gives you a new purpose. Hopefully, it defines something worth looking forward to. And it attempts to put some guardrails on this scary idea you have never tried before called “retirement.”

So, do spend some time thinking about what you’d like to accomplish once you’re retired. As part of this vision, reflect on what age you’d like to be when you’re doing these activities. This will be a good first step toward estimating your optimal retirement date.

The more you allow yourself to explore the possibilities, the more likely it is that you’ll feel comfortable (or perhaps even excited) about the idea of being retired. This will help you get fully committed to the next part of the process.

How to Determine Your Retirement Date

With your mindset in the right place, the next step is to make sure your finances will be robust enough to support your vision of retirement.

A good place to start is with calculating the minimum necessary size of your nest egg. At SYM Financial, we do that by using modern financial planning software and a series of assumptions that are too technical to explain in any one article. For starters, you can arrive at a back-of-the-napkin estimate by taking your anticipated annual expenses and multiplying them by 25.

For example, if you expect to spend $40,000 per year when you’re retired, then you could estimate that your nest egg should be:

$40,000 x 25 = $1 million

From there, your earliest retirement date will depend on when you believe you can arrive at this number. For most people, it becomes the matter of how much they can afford to save each month — and the rate at which their investments may be expected to grow under different market conditions.

Of course, retirement planning is much more complicated than this. In reality, not all of your income will come from your nest egg. Some of it may come from other sources (such as Social Security, pensions, annuities, dividends, etc.). Additionally, when thinking about how much retirement income you’ll need, there are other factors to consider. For example, does your annual expenses number include increased costs for healthcare? Taxes? Travel or leisure activities? Adjustments for inflation?

There are many other variables to consider such as:

  • When to take Social Security;
  • Which parts of Medicare to sign up for;
  • Your plan for long-term care;
  • Your willingness and ability to work part-time (as opposed to taking a full traditional retirement);
  • Any plans you may have to move; and more.

For these reasons, SYM Financial Advisors, believes that everyone deserves a more comprehensive analysis than any article or online savings calculator can take into account.

To explore our approach and how we help our clients to prepare for retirement, click here.

How Can I Change My Retirement Date?

Some people feel that their retirement date is too far away. Others worry that it’s coming up too quickly and that they won’t be prepared. No matter how you feel, know that entering retirement doesn’t have to be like jumping into the deep end of the pool. There are plenty of ways someone can gradually make the transition that is easier, both mentally and financially.

Transitioning to Part-Time Work

Instead of working full time, try asking your employer if you can cut back to 2–3 days per week. That way you can learn to adapt to the days when you’re not working — without cutting off your income completely.

Many health experts believe that continuing to work (even just a few days per week) can help a person maintain healthy social connections that are often lost after they sever ties with work. [I] In addition to the social aspects of part-time work, some people choose to stay partially employed in order to qualify for medical benefits.

Taking Up a Side Hustle

If you’d prefer to work more flexible hours or to do something other than your normal job, you may consider taking up a side hustle.

Side hustles can literally be anything. For instance, you might make some extra money by teaching, tutoring, babysitting, consulting, writing, doing handy work, flipping houses, etc. Some of those ideas require minimum financial investment; others involve more risk. If you become passionate about your side hustle and build up a good client base, you may even be able to turn it into your own small business.

Collecting Rental Property Income

Think you’d make a good landlord? Each new unit you acquire would be another potential monthly income stream. Collect enough of them, and the profits could eventually become significant enough to cover your living expenses.

It’s worth noting that with each of these strategies, there are tax consequences to consider. Even small amounts of income can affect your tax bracket and marginal income tax rate, as well as whether or not your Social Security benefits will be tax-free. The best thing to do is work with a knowledgeable advisor who can provide you with guidance and help you understand the tax consequences of your decisions.

Your Retirement Date Depends on You

Getting to your retirement date will depend a great deal on what you want to do with your time once you get there. But it will also hinge on how well you prepare your finances. And a large part of this will have to do with your overall tax strategy, both before and after you retire.

If you want to learn more about tax planning strategies for retirement, be sure to register for our free webinar, “The Road to a Tax-Savvy Retirement.” It is a great way to explore some of the strategies that clients may consider to potentially lower their lifetime tax bill.

You can learn more and register for the free webinar here.

Remember, the less you have to pay to the government, the more you get to keep. Join us to learn how to avoid common mistakes and plan for a peaceful, secure retirement — no matter your retirement date.

Want to explore more of our thinking about retirement date planning? Read more here!

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