11/6/2012 7:00 PM ET|
A 25-point retirement age checklist
Deciding when to retire can involve a complex set of factors. Here's what to consider when making the big decision.
If you're going to do it -- retire, that is -- you might as well do it at the right age. And doing it at the right age, according to the authors of a soon to be published paper, involves a bit of homework.
Retiring at the optimal age should not be left to chance, according to Kenn Tacchino, a professor of taxation and financial planning at Widener University, and Patricia Tacchino, the co-authors of a research paper to be published in Benefits Quarterly.
Rather, choosing a retirement age needs to be a rational decision that accounts for a variety of confusing and competing considerations, the Tacchinos write. And to reach a rational decision, the authors say, would-be retirees can benefit from using a checklist of factors to make the optimal choice.
Not surprisingly, the Tacchinos have created such a checklist. But it's no ordinary one. It's a checklist of 25 factors that would-be retirees can use to reach what the authors say would be a rational decision about the optimal retirement age.
This approach considers the financial feasibility of retiring, a would-be retiree's ability to continue working, the psychological factors surrounding the retirement decision, and the would-be retiree's personal situation.
So what's on the checklist? Well, the whole paper is 5,500-plus words and 25 pages long, but what follows is the essence of it, edited for average would-be retirees.
By applying weight or attaching value to each item in the checklist, you can hone the decision process to its logical conclusion (retire by choice, keep working by choice, retire by necessity or keep working by necessity) and avoid irrational choices, the authors write.
Also, the Tacchinos recommend that you use this checklist at various stages of your life: in the middle of your career, 10 to 15 years away from retirement and when retirement is imminent.
1. Calculate available retirement income and assess adequacy
Determine how much income you'll get in retirement from all available sources (pensions, Social Security, retirement accounts, work and the like). If this doesn't give you your desired lifestyle, given whatever withdrawal strategy you plan to use, consider not retiring. Not retiring when you don't have enough income to support your desired lifestyle isn't necessarily a bad thing, by the way. Also, it's quite possible that if you don't have the income to maintain your lifestyle in retirement, you should still examine the 24 other factors.
In addition, the authors say, not retiring serves four primary functions: It preserves your assets; it gives you a chance to keep building your nest egg; it shortens the period of time you'll be drawing down your assets; and it increases the monthly income you'll get from Social Security, provided you delay claiming it.
2. Consider life expectancy, expenditures and risks
Consider all the risks that you might face in retirement and how you'll mitigate those risks, be it the risk of outliving your assets, inflation or sequence of return risk. If you haven't addressed those risks, you might consider not retiring until you do. Of note, the Institutional Retirement Income Council has published a brief that quantifies six major risks (.pdf file) that both retirees and employees approaching retirement face in retirement.
3. Perform analysis to model plan functionality
How sound is your plan? Is there a 90% chance that it will work or just a 50% chance? If nothing else, you want to get a sense of the trade-offs and choices you have to make to ensure your plan is as sound as possible.
4. Evaluate the impact of your debt
If you have a lot of debt, especially mortgage debt, as you head into retirement, it could affect your ability to increase the amount of money you save for retirement. What's more, you shouldn't retire if you don't have sufficient income to service your debt, especially if you have a home equity loan that converts from interest-only payments to principal-and-interest payments while you're in retirement.
5. Determine the availability of health insurance
It might seem obvious, but if you don't have health insurance coverage, consider delaying retirement, the authors write. What's more, consider delaying retirement until you've earmarked either assets or income for out-of-pocket health care expenses in retirement. As various studies have shown, the net present value of health care costs ranges anywhere from $250,000 to $900,000 for a 65-year-old couple retiring today. Of course, before making your decision to retire or not, you should consider all sources of health insurance, including employer-sponsored retiree health insurance, spousal insurance, COBRA coverage, Medicare and Medicaid.
6. Examine the impact of various Social Security claiming-age options
Make no mistake about this one. There are plenty of Social Security strategies, many of which can increase your monthly benefit and overall benefit. One bit of advice as you contemplate when to retire and when to take Social Security: Distinguish between the Social Security claiming age and the optimal retirement age, the Tacchinos write. The two are not inextricably linked. In other words, choosing the ideal age at which to claim Social Security is a different and separate decision from when to retire.
So be sure to examine not just the best age to retire but also the best age (or ages, if you're married) to claim Social Security.
7. Assess the type of retirement plan and the plan's features
Some, though not all, workers have employer-sponsored pension plans with different features and different distribution options, as well as contribution or benefit formulas. Knowing what you have is part of deciding your optimal retirement age.
8. Analyze the financial status of investments
If you retire before or during a down market, you stand a good chance of running out of money. They call this, in some circles, the sequence of return risk. For some, it means reducing the percentage of money you might put in risky assets and delaying retirement. For instance, retirees need fewer stocks and more annuities.
For those who think the stock market might rise in the five- to 10-year period around retirement, it might be OK to retire.
9. Examine earnings prospects if you remain employed
What do you stand to earn if you keep working, versus the joy you would get from being retired and enjoying a life of leisure? That's the trade-off that must be evaluated. "Significant opportunity cost reduces the probability of retiring," the authors write. If you stand to earn a significant salary and/or receive nonqualified deferred compensation by working, you are more likely to keep working, write the Tacchinos. Of course, working might also increase the desire to retire.
10. Appraise the availability of phased retirement
You might be more likely to select a retirement age if you knew you could ease into retirement -- a phased retirement, so to speak. In other words, retiring isn't always about leaving the workforce and relying on income from a pension or Social Security, the authors write. It could also mean working part time or seasonally, presuming of course there are such job opportunities.
11. Factor in early retirement incentives
If you're lucky enough to get a golden handshake, God bless. "But don't be blinded by offers that are desirable in the short term, but could leave (you) short of financial resources in the long term," the authors write.
Also consider negotiating sweeteners (maybe retiree health insurance or a bigger severance package) long before your employer offers you a retirement incentive package. "Employers may be eager to release a long-service employee who is relatively higher paid in favor of a young employee who is not," write the Tacchinos.
12. Consider your willingness to compromise financial goals
There's the lifestyle you want in retirement and the lifestyle you might have to settle for, given your resources. If you're willing to reduce your standard of living, you might be able to retire at your ideal age instead of delaying it. And studies have shown that satisfaction in retirement tends to be high regardless of income, assuming you retired on your terms, are in good health and are married.
13. Assess whether you are and/or will be healthy enough to continue working
If you're not in good health, you may have to retire involuntarily, and it's unlikely to be at your optimal retirement age. This is something you might have to factor into your plans or your possible scenarios.
More from Market Watch:
VIDEO ON MSN MONEY
Retire as soon as you can and take the money and convert it into precious metals, The dollar will be worth less sooner then you think. . How come MSN didn`t mention that ? Oh, they really want you to think it`s business as usual .NOT!!!!!! Were all being screwed by their criminal system. Wake up and smell the Corporatists/ fascists and some Marxist thrown in for good measure.
They want all you have and want you to eliminate yourself for the cause.
Obviously this author has been on another planet. I retired at 62 because it was mid-2009 and it was obvious that the n...ger in Chief was moron and we would have high unemployment forever, with Seniors at the bottom of the list of desirable hires. I had lost my consulting practice with thousands owed me by clients who bailed. I had no savings or investments because Merrill Lynch churned my account several years before and divorse left me homeless, furnitureless and cash broke. My extra money in life was consumed, with loving necessity, by the health needs of my later handicapped daughter (lived 28 years). So this list of 25 things is stupid and insulting. Spend time figuring out ways ruined retirees like me can get rid of Obama, the worst thing to happen to seniors since agism.
The biggest factor missing in this checklist is start planning early for your retirement. When the job became too difficult to continue I pulled the plug and retired. I had planned for the retiement, prepaid my sons college education, set aside funds for their education and our impulse buys. The boys have graduated from college, no debt and are working. Wife and I travel as we please and I spend my week days on the golf course with several others who also planned. Been retiredf about 8 years and so far so good. Make a plan and stick to it.
This is BS. Just do it, quit and retire; figure it out later. F*** working until you are too old to do anything anyway! Where I live is a lot more important to me than what I live in; Therefore I'd rather live on nothing on my sailboat in the Keys than live like a king in a house that I hate in a location that I hate and can't afford.
Why bother waiting... Now that we are all part of Obama's Socialist Utopia, lets just quit working and suck off the Government titty! I am glad I will be dead in the next 40 to 45 years and won't have to watch the greatest nation on earth allow lazy, uneducated, ignorant people to lay on their good-for-nothing asses and mooch off those who still have a shred of self respect! I especially liked how our crooked President allowed millions of illegals to vote in our elections, just so he could get another term.
Generation Y is the most lazy, pathetic, ignorant generation America has produced. They will be responsible for the down fall of the American Dream.
I especially enjoy standing next to them at Safeway. The part where they pull the food stamp card out of their Coach handbag, while texting on their iphone is my favorite... Sponging off the system... They truly disgust me. Especially when so many great people fought with their lives to create this nation...
Here is a SIMPLIFIED "TWO-POINT" retirement age plan:
1. Age 65 and give us back our GUARANTEED PENSIONS that the corrupt Republican corporate MONARCHY STOLE from the 99% American People! They were NEVER GIVEN A CHANCE TO REBUKE THIS BLATANT THIEVERY!
2. Age 105 with the current 401k that the corrupt Republican corporate MONARCHY GAVE the 99% American People, which was NOTHING MORE THAN THE MONARCHY'S INSURANCE POLICY THAT STATES, " if we fail, so do you" ! The AVERAGE AMERICAN, if they were to retire RIGHT NOW, would have $80 a month to live on!! If that isn't a kiss my butt, what is?????
What age should a person retire??? The answer to this question is as obvious as asking a person if they close their eyelids when they go to sleep. Duh......let me see now Duh...... I think the correct anwer would be...... oh! I have it!!, at any age that you could afford to retire!! Duh.......LOL
Obama's in Romney s. out, the elections are DONE. Get over it !! Do any of you REALLY think your retirement will be any better with either one of them. WAKE UP PEOPLE ! Dem. or Rep you can't fight all these wars without $$MONEY$$. Your tax money AND YOUR S.S. money is going right to the middle east through the USA money laundry system. Then Wash DC will us S.S. is going broke. The best part is ALL you GULLIBLE believe them. How come the SCUM in DC aren't in the SS system ? It doesn't take a genius to figure that out ! How much does there health ins. cost?
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.