It May Not Be Wise to Plan on a Late Retirement
If you ask most people these days what age retirement begins, you will likely get an answer of 65. However, that answer is an oversimplification of a large range of ages at which people actually retire. According to a recently completed Gallup poll, 23% of Americans are planning on retiring before age 62, 38% plan to retire between the ages of 62 and 67 and 31% are currently planning on retiring at age 68 or later. From a financial planning perspective, the age at which you retire can have an outsized effect on your portfolio’s resiliency through what is regularly a 20-to-30-year retirement period.
Additionally, the government is also encouraging workers to delay retirement for the benefit of the social security program. If you were born in 1960 or later, your full retirement age is actually 67. If you elect to retire and start receiving benefits at age 65, you will only get 86.7% of the monthly benefits you are entitled to, because the Social Security Administration is providing you with 24 months of additional benefits. And if you fall into the 23% of Americans planning on retiring before age 62, you can expect to only receive 70% of the benefit you are entitled to.
In general, this push towards a later “normal” retirement date has benefits for your retirement accounts. Before retirement, you are likely earning close to the highest salary of your career. Therefore, by delaying retirement by a couple of years, you could add tens of thousands of dollars to your retirement accounts, and possibly much more to your taxable accounts, while also reducing the number of years that the accounts will need to sustain your spending.
However, planning for such a reality is not as straightforward as it may appear. According to the Employee Benefit Research Institute, only 4% of retirees actually retire at age 70 or later, and only 10% retire between the ages of 66 and 69. That means that if you are part of the 31% of Americans planning on retiring at age 68 or later, there is a good chance that you will not be able to achieve that goal. The majority of people who fall short of their planned retirement date do so because of a health problem or a disability, but other possibilities include a change at their company or a realization that they are financially secure enough to retire earlier. To summarize, the age at which to begin retirement can be a tough decision, and workers often over or underestimate the age range at which they will retire.
Here at Woodside Wealth Management, we use advanced financial planning software to model multiple retirement scenarios and prepare all of our clients for the uncertainty that can come along with this important decision. To learn more about our retirement services you can click here. To read more about these retirement surveys, click here to view the article in our learning center.