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How to Decide When to Retire

When do I retire? This is one of the most important decisions an individual will make in their lifetime. Having a spouse or partner can make the timing more involved with all of the different aspects of dual retirement. Here are some factors to consider when making this important decision.

Senior couple running into retirement on beautiful beach

by Steve Schou | FNBT Wealth Management Trust & Investments Officer

Financial Well-Being

Financial well-being or income during retirement. This is traditionally thought to come from three main sources or what is called a “three-legged financial stool”: Social Security benefits, pensions, and personal retirement savings.  Individuals can claim Social Security benefits at any age between 62 the earliest eligible age (EEA) and age 70, and this choice affects the size of the benefit. Benefits that are initiated prior to an individual’s full-retirement age (FRA) are proportionately reduced for the life of the individual and any future spousal benefit.  At FRA, retirees receive their full scheduled benefits. Between his or her FRA and age 70, delayed retirement credits are applied, permanently increasing the monthly benefit amount. According to a particular set of questions asked in a Health and Retirement study from the Social Security policy, age 62 and 65 are the ages most frequently chosen for retirement. Only 13 percent of the participants reported an age other than 62 or 65 as being their chosen retirement age.

There are some retirees that retire with pension benefits. However those numbers continue to decrease each year since most employers have replaced pensions with 401(k) or 403(b) plans. This changing pension environment has increased the importance of an individual’s personal retirement savings. In today’s work environment most retirees must depend on a “two-legged stool” instead of the traditional “three-legged stool”. Individuals must start saving as early as possible and putting away at least 10-20 percent of their working income in their 401(k) or 403(b) plans. Rarely have I met with a retiree who said that they accumulated too much money for their retirement. The most common concern is, “do I have enough money to retire?”  Fidelity Brokerage Services suggests to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by age 67. If you’re behind, don’t worry. There are ways to catch up, work with your Certified Financial Planner® toward your financial accumulation goals.

Insurance Status

Health/medical insurance status can have an impact on when an individual chooses to retireOn average the age 62 and 65 groups who do retire early, didn’t say that health was the reason for their decision.  Various studies found that being “tired of work” was the main reason for people that retired at 62. In fact, based on a study of early retirement age retirees by the Employee Benefit Research Institute only about 15 percent of survey respondents reported early retirement because of health issues. Sometimes the age 65 retiree group stayed in the workforce longer than the age 62 group to get closer to their full retirement age benefits while waiting for their Medicare eligibility for continued medical insurance.

Emotional Impact

The emotional effects may significantly impact an individual as they transition from working to retirement.  Many retirees are aware of the financial and medical insurance needs for retirement, but tend to overlook the importance of the emotional adjustments in retirement.  Future retirees may be excited about life without work and the leisure opportunities retirement allows, however contemplating retirement can introduce negative emotions as well.  During this transition people may go through various emotions from euphoria to depression and even low self-worth before settling down to a comfortable retirement life.  Once the initial euphoria is over there may be fear of boredom or being less engaged in society.  It is important to try to visualize what down time will really look like.  For example, volunteer with organizations that you are passionate about.  Start thinking about something that you have always wanted to do, but never had the time.  Maybe there is a hobby that you already enjoy or one that you have always wanted to start.  Do both of you enjoy traveling, gardening, golfing, etc.?  It is important to create a retirement plan with your partner so that you are on the same page.

In summary, the question of when to retire is filled with financial, medical, emotional decisions for an individual and can be more complex for couples.  It can be healthy for the relationship to allow each partner the opportunity to have their own leisure activities, while also sharing a life with each other.

Without proper thought and planning, leaving the workforce can be both exciting and stressful. To help work through this exciting but scary next step, seek a knowledgeable and experienced Certified Financial Planner® to assist you.
Bio - Steve Schou

Steve Schou's BioSteve joined First National Bank and Trust's Wealth Management team in 2020 as a Trust & Investments Officer, providing Sound Advice and expertise on investment strategies, retirement, and Social Security planning to FNBT clients. With over 30 years of financial experience, Steve's passion is to help guide people through the maze of long-term financial planning and investing. He believes in outside-the-box thinking using a holistic approach to retirement and estate planning. This approach addresses the emotional, psychological, and financial aspects of retirement. A Certified Financial Planner Practitioner™, CFP® since July 1994, Schou obtained the Accredited Wealth Management Advisor™, AWMA® in July 2018. During his career he’s been a partner in an independent investment firm, and has written many articles on the topics of investing, and retirement.