Determining a Retirement Timetable

By Steve Siegel, ASA, MAAA

When should I retire? This is an important question for many working Americans, and it’s especially top of mind for those approaching the traditional retirement age in the U.S.

This question can only be answered after many other considerations, and the best answers depend on each person’s circumstances and retirement goals. This article explores a few of the basic questions to ask yourself when figuring out the best time to retire.

Do I Have Enough Money?

When planning for retirement, it’s important to consider whether you have enough money to support yourself and to meet unexpected expenses. This involves evaluating your savings, investments and other sources of income. It's crucial to have a clear understanding of your financial situation and to plan accordingly to ensure a comfortable retirement.

When Should I Claim Social Security?

Deciding when to claim Social Security benefits is a critical financial aspect of retirement planning. The Social Security retirement benefit is a monthly check most retirees receive from the U.S. government. About 40% of retired Americans live solely on Social Security, according to the National Institute of Retirement Security. And those with retirement savings still usually rely on Social Security to help meet their monthly budgets. When to start claiming Social Security depends on each individual’s situation, including their financial resources and retirement goals.

Eligible individuals can start claiming monthly Social Security benefits at age 62. When a person waits until full retirement age, which is 66 or 67, they receive 100% of the benefit due. If they start claiming before their full retirement age, that monthly benefit will be reduced, and for every month beyond full retirement age, it will increase, until they reach 70 years of age. Delaying Social Security for as long as possible can be helpful for many because it maximizes the amount of the monthly benefits they receive.

The table below illustrates an example of how a person’s initial monthly benefit changes, depending on how old they are when they first claim Social Security:

People also should take their marital status into consideration when deciding when to claim Social Security benefits because this can result in a number of potential timing strategies. Another factor to think about is individual health status, which can also lead to different potential timing choices. It’s critical to consider all of these factors as soon as possible in your retirement planning.

The Social Security Administration offers detailed information that can assist with this decision, including a tool that will help estimate one’s Social Security benefit.

What Other Financial Resources Do I Have?

In addition to Social Security, you should take into account other sources of retirement income. Pensions, also known as defined benefit plans, are an important income for many, though they have become much less common in recent years.

Pensions are governed by the plan’s rules that state when benefits are available. For example, benefits may start being available at age 55 and after 10 years of service and may increase until a later date. A pension plan may specify additional conditions that can affect the size of the benefit.

According to the U.S. Bureau of Labor Statistics, only about 15% of private industry workers in America have access to pensions . So, more retirees rely on other sources of income to meet their budgetary needs. These sources include 401(k)s, IRAs, annuities and other funds. Retirees can withdraw money from these funds to meet their monthly budgets and pay bills.

Where Will I Get Medical Benefits?

Health insurance and Medicare availability are crucial concerns. Workers who are considering retirement before age 65 should research their options to ensure they have adequate medical coverage when they stop working.

Medicare is a health insurance program offered by the U.S. government to retirees and younger people with disabilities. Medicare eligibility begins at age 65 for retirees. People who are eligible for traditional Medicare may also want supplemental coverage offered by insurance companies to cover gaps in Medicare coverage. They can also look into options to substitute traditional Medicare with Medicare Advantage plans, which are Medicare-approved health plans offered by private insurance companies.

What Is Likely to Change During Retirement?

Retirement often brings changes in income and expenses and can influence when a person retires. So, it's important to consider how your financial situation will evolve and plan accordingly. For example, expenses can increase due to travel, new hobbies and other activities. On the other hand, work-related expenses stop.

Housing costs may also change. Many retirees spend at least part of their retirement years in senior housing, which may result in significantly increased costs. On the other hand, some retirees downsize, which decreases expenses and may result in less time spent doing maintenance and other chores.

Taxes also may adjust during retirement. If you will be taking regular withdrawals from your investments or required minimum distributions (RMDs) from tax-deferred savings, find out how those funds will be taxed ahead of time to avoid unpleasant surprises. RMDs are the government-required minimum amount of funds that people must take out of their 401(k)s and other individual retirement accounts, and these withdrawals can have different tax implications.

Additionally, Social Security benefits might affect your income tax situation in other, more complex ways. So, it's a great idea to get expert tax advice to understand how your withdrawal strategy will affect your overall tax situation.

What Are My Passions and What Do I Want to Pursue in Retirement?

Retirement is an opportunity to follow your dreams and interests. Whether it's traveling, starting a new hobby, or participating in activities you've always wanted to try, it's essential for individuals and couples to plan for these pursuits and think about how they will impact expenses and overall retirement experience.

Help With Finding Answers

Deciding when to retire is complicated and relies on many personal factors and situations. There are resources that can help, such as retirement planning experts, financial tools and publications. The Society of Actuaries (SOA) Research Institute offers a library of retirement planning and post-retirement decisions guides. Two such guides include Deciding When to Claim Social Security and Big Question: When Should I Retire? These guides provide detailed information and links to additional resources available through the SOA Research Institute, the U.S. federal government, and nonprofit organizations.