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Timing is not everything, it's the only thing!

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When to Retire

Armed with retirement goals, knowledge of your Net Worth, a retirement expense budget and a pre-retirement checklist, you are now in a position to calculate when you’ll be able to retire and/or how much financial flexibility you’ll have in retirement.

Before creating a tentative Retirement Financial Plan and seeing if it works, you'll need to consider a major factor in the plan -- how long you’ll let your Social Security benefits grow until you elect to start receiving them.  The longer you wait, the higher your monthly benefits.  Many people elect to start receiving Social Security benefits at age 62 and pay the price of reduced income.

The following table illustrates Social Security benefit reductions at age 62 based on your birth year:

 

Full Retirement and Age 62 Benefit By Year Of Birth

Year of Birth

Full (normal) Retirement Age

Months Between Age 62 & Full Retirement Age

At Age 62 a $1,000 Retirement Benefit Would be Reduced to

The Retirement Benefit is Reduced By

1937 or earlier

65
36
$800
20.00%
1938
65 and 2 months
38
$791
20.83%
1939
65 and 4 months
40
$783
21.67%
1940
65 and 6 months
42
$775
22.50%
1941
65 and 8 months
44
$766
23.33%
1942
65 and 10 months
46
$758
24.17%
1943 - 1954
66
48
$750
25.00%
1955
66 and 2 months

50

$741
25.83%
1956
66 and 4 months
52
$733
26.67%
1957
66 and 6 months
54
$725
27.50%
1958
66 and 8 months
56
$716
28.33%
1959
66 and 10 months
58
$708
29.17%
1960 and later
67
60
$700
30.00%

Notes:

1.         If you were born on January 1st, you should refer to the previous year.

2.         If you were born on the 1st of the month, the benefit is figured as if your birthday was in the previous month.  You must be at least 62 for the entire month to receive benefits.

3.         Percentages are approximate due to rounding.


 

Retirement Financial Plan

With your annual expense budget and a feel for your tolerance for accepting reduced Social Security benefits, you’re now in position to determine if/when you’ll have sufficient income to retire.  This is simply a matter of determining when your regular retirement income checks plus investment drawdowns will meet your budget over your projected lifespan.  To perform this calculation, you’ll need to make several assumptions regarding average annual cost-of-living (COL) increases (for both income and expense), portfolio investment growth, and how long you plan to live.  To assure not running out of money you may wish to add ten years to the Social Security Life Expectancy Tables shown earlier.  Also, you may wish to not spend all of your assets thereby saving some for your heirs.

Lets assume that your 57 years old and considering retiring at age 63.  Following is a simple table (Retirement Financial Plan) that projects your ability to retire in December 2025 based on these assumptions:

  • You are 57 years old in 2019,
  • Your retirement annual expense budget is $85,000 and grows by 3% a year,
  • You start collecting Social Security ($1,500/mo.) and a company pension ($2,500/mo.) in January 2025,
  • Annual inflation is 2% and portfolio growth is 6%, and
  • You invest an additional $10,000 this year and $3,000 extra each year until retirement.

Note that Assets build up to the start of retirement value, and afterwards are adjusted each year for Growth minus Drawdown (to meet income shortfall).  Income (SS & Pension) plus Portfolio Drawdown equals Expense.

 

Retirement Financial Plan Example

             
 Taxable Income Requirement*

Retirement Income Sources

Retirement Assets

 
 Yr.Age

Expenses 3.0% Inf.

 

Social Security 2.0% Inf.

Pension Income

Shortage (Portfolio Drawdown)

 

Assets

Growth @ 6.0%

Addit'l Invest.

 
    
    
  
 201957   500,00030,00010,000 
 202058   540,00032,40013,000 
 202159  585,40035,12416,000 
 202260  636,52438,19119,000 
 202361  693,71541,62322,000 
 202462  757,33845,44025,000 
 

------------ Retirement ------------

 
 202563 85,000$18,000 $30,00037,000827,77949,667 
 202664 87,55018,36030,00039,190840,44550,427 
 202765 90,17718,72730,00041,449851,68251,101 
 202866 92,88219,10230,00043,780861,33451,680 
 202967 95,66819,48430,00046,184869,23452,154 
 203068 98,53819,87330,00048,665875,20352,512 
 203169 101,49420,27130,00051,224879,05152,743 
 203270 104,53920,67630,00053,863880,57052,834 
 203371 107,67521,09030,00056,586879,54152,772  
 203472 110,90621,51230,00059,394875,72852,544 
 203573 114,23321,94230,00062,291868,87852,133 
 203674 117,66022,38130,00065,279858,72051,523 
 203775 121,19022,82830,00068,361844,96450,698 
 203876 124,82523,28530,00071,540827,30049,638 
 203977 128,57023,75130,00074,820805,39848,324 
 204078 132,42724,22630,00078,202778,90246,734 
 204179 136,40024,71030,00081,690747,43544,846 
 204280 140,49225,20430,00085,288710,59142,635 
 204381 144,70725,70830,00088,998667,93940,076 
 204482 149,04826,22330,00092,825619,01637,141 
 204583 153,51926,74730,00096,772563,33233,800 
 204684 158,12527,28230,000100,843500,36030,022 
 204785 162,86927,82830,000105,041429,53825,772 
 204886 167,75528,38430,000109,371350,26921,016 
 204987 172,78728,95230,000113,836261,91515,715 
 205088 177,97129,53130,000118,440163,7949,828 
 205189 183,31030,12230,000123,18955,1813,311 
 205290 188,81030,724 30,000128,086

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0 
  
 * Income Required to Cover Budgeted Expense 
             

This table shows that the Retirement Financial Plan works, assuming that the retiree does not live past age 89.  Assets will be entirely consumed, based on forecasted retirement expense, if the retiree lives to be 90 years old.

The Plan makes assumptions regarding assets and income, which are the ingredients in funding your retirement.  Now let’s turn our attention to the subject of obtaining an annual income sufficient to meet your retirement expense budget.