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Retirement Timing

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

When to Retire

Previous pages of this Retirement Planning Section presented information on Setting Retirement Goals, Establishing a Retirement Budget, Saving for Retirement, and utilizing a Pre-Retirement Checklist. Armed with retirement goals, knowledge of your Net Worth (from the Retirement Savings page), 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%
  • If you were born on January 1st, you should refer to the previous year.
  • 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.
  • Percentages are approximate due to rounding.

Investment Nest Egg Rules of Thumb

A frequently asked question is "How much investment assets will I need to retire?" There is no simple answer to this question since the answer is determined by:

  • What percent of your pre-retirement salary will you need?
  • When do you plan to begin receiving social security benefits?
  • Do you have other income such as pensions, dividends, annuities, rental income, etc.?
  • How are your assets invested?
  • Are you retiring with debt, such as a mortgage, car loan, etc.?

The table below shows that if you need 80% of your salary in retirement, retire in 2022 with a full social security benefit, have no other income, have no debt, earn 4% on your investments and withdraw these earnings to help fund your retirement, you will need investment assets of $200,000 to $1,800,000 depending on your pre-retirement salary. (This does not account for increasing salary requirements due to inflation.)

Annual Salary 80% of Salary Social Security Additional Needed Required Investment Assets
$60,000 48,000 40,140 7,860 196,500
$70,000 56,000 40,140 15,860 396,500
$80,000 64,000 40,140 23,860 596,500
$90,000 72,000 40,140 31,860 796,500
$100,000 80,000 40,140 39,860 996,500
$110,000 88,000 40,140 47,860 1,196,500
$120,000 96,000 40,140 55,860 1,396,500
$130,000 104,000 40,140 63,860 1,596,500
$140,000 112,000 40,140 71,860 1,796,500

The Investing Section will help you determine how much you'll need to invest while still working to build your retirement nest egg. It assumes 50% income requirement and 6% investment growth instead of the 4% assumed here.

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.

Let's assume that you are 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 2027 based on these assumptions:

  • You are 57 years old in 2022,
  • You retire in December 2027 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 2028,
  • 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. When you reach the age of 70 1/2, your asset drawdown from any IRA investment funds will be influenced by Required Minimum Distributions (RMDs).

Note that in the example below, portfolio growth exceeds investment drawdown in the first 11 years of retirement. Afterwards, retirement assets reduce each year by an increasing greater amount. The good news in this example is that at age 90, the retiree will still have almost half of his/her retirement nest egg.

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.
202257500,00030,00010,000
202358540,00032,40013,000
202459585,40035,12416,000
202560636,52438,19119,000
202661693,71541,62322,000
202762757,33845,44025,000
Retirement
20286385,000$24,000$30,00031,000827,77949,667
20296487,55024,48030,00033,070846,44550,787
20306590,17724,97030,00035,207864,16251,850
20316692,88225,46930,00037,413880,80552,848
20326795,66825,97830,00039,690896,24053,774
20336898,53826,49830,00042,040910,32554,619
203469101,49427,02830,00044,467922,90455,374
203570104,53927,56830,00046,971933,81256,029
203671107,67528,12030,00049,556942,87056,572
203772110,90628,68230,00052,223949,88656,993
203873114,23329,25630,00054,977954,65657,279
203974117,66029,84130,00057,819956,95857,417
204075121,19030,43830,00060,752956,55757,393
204176124,82531,04730,00063,779953,19857,192
204277128,57031,66730,00066,903946,61256,797
204378132,42732,30130,00070,126936,50656,190
204479136,40032,94730,00073,453922,57055,354
204580140,49233,60630,00076,886904,47054,268
204681144,70734,27830,00080,429881,85252,911
204782149,04834,96330,00084,085854,33551,260
204883153,51935,66330,00087,857821,51049,291
204984158,12536,37630,00091,749782,94446,977
205085162,86937,10430,00095,765738,17244,290
205186167,75537,84630,00099,909686,69741,202
205287172,78738,60230,000104,185627,98937,679
205388177,97139,37530,000108,597561,48433,689
205489183,31040,16230,000113,148486,57629,195
205590188,81040,96530,000117,844402,62224,157