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Retirement Timing

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

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:

Social Security Benefit Reduction

Year of
Birth
Full
(normal)
Retirement
Age
Months
Between
Age 62
& Full
Retirement
Age
At Age 62
a $1000
Retirement
Benefit
Would be
Reduced to
The
Retirement
Benefit is
Reduced By
1937 or earlier6536$80020.00%
193865 and 2 months38$79120.83%
193965 and 4 months40$78321.67%
194065 and 6 months42$77522.50%
194165 and 8 months44$76623.33%
194265 and 10 months46$75824.17%
1943-19546648$75025.00%
195566 and 2 months50$74125.83%
195666 and 4 months52$73326.67%
195766 and 6 months54$72527.50%
195866 and 8 months56$71628.33%
195966 and 10 months58$70829.17%
1960 and later6760$70030.00%

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 2021,
  • You retire in December 2026 at age 62.
  • You have $500.000 in Retirement Assets and continue to save while working,
  • You invest an additional $10,000 this year and $3,000 extra each year until retirement.
  • Your retirement annual expense budget is $85,000 and grows by 3% a year,
  • You start collecting Social Security ($2,000/mo.) and a company pension ($2,500/mo.) in January 2027,
  • Annual inflation is 3%, portfolio growth is 6%, and SS increases by 2%.

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 Assets Drawdown to Cover Cost of Living

Taxable Income RequiredRetirement Income SourcesRetirement Assets
YearAgeExpenses
(3.0% inf.)
Social
Security
(2.0% inf.)
Pension
Income
Shortage
(Portfoio
Drawdown)
AssetsGrowth @
6.0%
Addit'l
Invest.
202157500,00030,00010,000
202258540,00032,40013,000
202359585,40035,12416,000
202460636,52438,19119,000
202561693,71541,62322,000
202662757,33845,44025,000
Retirement
20276385,000$24,000$30,00031,000827,77949,667
20286487,55024,48030,00033,070846,44550,787
20296590,17724,97030,00035,207864,16251,850
20306692,88225,46930,00037,413880,80552,848
20316795,66825,97830,00039,690896,24053,774
20326898,53826,49830,00042,040910,32554,619
203369101,49427,02830,00044,467922,90455,374
203470104,53927,56830,00046,971933,81256,029
203571107,67528,12030,00049,556942,87056,572
203672110,90628,68230,00052,223949,88656,993
203773114,23329,25630,00054,977954,65657,279
203874117,66029,84130,00057,819956,95857,417
203975121,19030,43830,00060,752956,55757,393
204076124,82531,04730,00063,779953,19857,192
204177128,57031,66730,00066,903946,61256,797
204278132,42732,30130,00070,126936,50656,190
204379136,40032,94730,00073,453922,57055,354
204480140,49233,60630,00076,886904,47054,268
204581144,70734,27830,00080,429881,85252,911
204682149,04834,96330,00084,085854,33551,260
204783153,51935,66330,00087,857821,51049,291
204884158,12536,37630,00091,749782,94446,977
204985162,86937,10430,00095,765738,17244,290
205086167,75537,84630,00099,909686,69741,202
205187172,78738,60230,000104,185627,98937,679
205288177,97139,37530,000108,597561,48433,689
205389183,31040,16230,000113,148486,57629,195
205490188,81040,96530,000117,844402,62224,157