Should I wait until I am 70 years old to retire?
I have just heard that people should forget about retiring until they are 70 years old. Does this only apply to a certain target audience? I am thinking about retiring when I am 60 years old (9 years from now). I have about $2,300,000 in investments split equally between a 401(K) and other investments. My wife and I have always lived well under our means.
I think this question points up the uselessness of applying the same formula to everyone of a certain age. There are so many 51-year-olds in this country that have no appreciable savings and it is they who will have to work until 70 (or past). If you have saved, you can retire comfortably. (Is everyone else reading this? Now, do it!)
I usually tell clients that they have enough to retire if, after subtracting all predictable retirement income (such as Social Security, corporate or government pensions, or net income from property you own) the annual amount you need to fund your lifestyle, including taxes, is 1/20 or less of your liquid invested assets.
If you have $2.3 million now, and if you intend to let it compound untouched for the next 9 years, then if you average 5% over the next 9 years you will have about $3.6 million. (More, if you add regularly to savings between now and then.) Thus if your living needs after SS etc. are less than $15,000 per month you can afford to retire. The only reason for you to work to age 70 is if you love doing what you do and could be happy being semi-retired.
By the way, everyone should also avoid "target date funds" for this reason. You are not like everyone your age, so you should not all invest alike.
What you heard has become a new rule of thumb that effectively is simply untrue. With 35 years of experience in providing retirement planning on a fee-only basis, the key to any retirement comes in two parts. The first is personal cash flow and the second is a plan on what you will do with your time if you formally retire. One without the other is somewhat dangerous and for those who don't have adequate cash flow, retiring at age 70 is simply a different goal. Having said all this, you appear to have the necessary wherewithal to retire at age 60 but again, this is a cash flow issue. Attempt to determine your existing expenses, both fixed and discretionary and then attempt to determine how they would change if you formally retired, let's say on January 1, 2018. If the change is dramatic on the downside, you're probably being overly optimistic so be careful. When estimating expenses, always overestimate expenses to a slight extent and underestimate income in the same fashion. In this way, if you do make a mistake, it will always be in your favor. Finally, you need a plan as to what you're going to do if you actually retire. There's and old expression that says, "for better or worse but never for lunch. "You have to be careful that you're not going to be in and around the house 24 hours a day and in your wife's hair. She's lived 30 years without having to prepare your lunch and she shouldn't have to do it this time in life. I sincerely hope this helps and good luck.
Your age is not necessarily the driver of this decision. A properly allocated portfolio of 70% equities and 30% bonds will deliver a conservative draw of 4% for the rest of your life AND leave a substantial estate. If your current income needs are $92K or less, working just became optional!
Don't forget Social Security benefits as well. We generally recommend that clients not start drawing SS until age 70. For a typical middle class family, that's about $25-35K per working spouse. If you don't know for sure, obtain a current statement from www.ssa.gov/myaccount. If you learn, for example, that you'll receive $40K/year staring in ten years, you could actually go to a higher draw rate of 5%/year now, then scale back once you receive benefits.
If you do decide to retire this year, obtain your current draw from taxable (e.g. individual or joint) accounts, postpone drawing against your 401K until 70 1/2 to keep the tax deferred benefit going as long as possible.. At that point, you must take Minimum Required Distributions which are taxable at your income rate. We usually send our clients MRD's directly to their taxable accounts each January 15th, to reload the funds we distribute each month as their draw.
One final option. Most of our clients want to leave an estate. However, for those clients "who want the last check to bounce" we can actually convert part or all of their retirement saving to a fixed income two life annuity. The current annuity distribution for a couple 60 years old is about $9500/month, or $114K/year. For clients that want this approach, we recommend holding off two or three years in expectation of higher interest rates. When you buy a fixed annuity, you lock in current interest rates.
David Edwards, President
Heron Wealth - www.HeronWealth.com
The best age to retire is the "best" age for you based on your financial circumstances and your expectations during your 30-35 years you will spend in retirement. You have certainly done a good job building a nest egg and congratulations on making the sacrifices and having the diligence to do that!
There are many facets to retirement that go beyond just finances. Are you prepared to live a new life with nothing but spare time? Do you have expectations in the areas of pursuing new hobbies, volunteerism, or mentoring? Have you considered lifestyle options such as relocating or a purchasing a second home? Having some goals in these areas and other areas is just as important to your retirement well-being as your financial ability to retire.
When you investigate your retirement, consider all these thoughts and map out a plan that makes sense for you and your wife. Then I would suggest sitting down with a financial planner that can help you run through the various retirement scenarios that make sense for you. Seeing a set of scenarios in black and white may help you decide which retirement age and strategy is best for you!
Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY.
Great job on the $2.3M saved! Waiting until at least age 67 will allow you to maximize your social security payout if applicable. Considering a rough calculation for 20-30 years of withdrawals, including approximate taxes, conservative investment returns, and inflation, you should be able to retire around 70 and enjoy annual support of about $60-70k. If you would like to use part of your principal for a special purpose (e.g. charity/inheritance), you may also have the option of living off of interest/dividends based on your income needs and risk tolerance with an appropriate portfolio allocation. A more accurate estimate would be possible with more details on your total financial picture.