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Why Your Retirement Age Matters


Whether your dream is taking early retirement or working through your eighties, you should know why your retirement age matters. Choosing when to retire is one of the biggest financial decisions you’ll make for the rest of your life and it could be considered right up there with buying a home. If you retire too early then you risk outliving your retirement savings. If you wait too long to retire and you might be robbing yourself of hard-earned leisure time. If you’re worried about choosing the right age, consider working with a financial advisor who can map out your retirement path with you.

Retiring Early, By Choice or Necessity

Why Your Retirement Age Matters

Retiring early means different things to different people. Some people dread retirement while others can’t wait to leave the workforce. Early for a lawyer is not the same as early for a professional athlete. Recently, the financial independence movement has gained followers, prompting some folks in their thirties to give up work altogether. For some Americans, early retirement is a goal or a choice, while for others it’s a harsh reality imposed by a health crisis or a lay-off.

There’s increasingly no such thing as a “normal retirement age.” Polls show that Americans expect to work later into their lives than their parents did, but in an uncertain job market, it can be tough to control just how long we’ll stay in the workforce. That’s why it’s so important to start saving for retirement early and give your money plenty of time to compound. If your savings are looking a little lackluster when you hit 50, take advantage of IRS rules that allow catch-up contributions to retirement accounts.

One benchmark many people use is the Social Security retirement age. Social Security benefits are available as early as age 62, but they’ll be reduced for anyone who claims between age 62 and their Full Retirement Age (FRA). Your FRA is between 65 and 67, depending on when you were born. For every year between your FRA and age 70 that you wait to claim benefits, you’ll get a bump in benefits as a thank-you from the Social Security Administration.

Another important factor to consider is Medicare, which kicks in at age 65. With healthcare costs climbing, health insurance coverage and the money to supplement it should be on the radar of every soon-to-be-retiree. If you currently have health insurance through your employer and you plan to retire before age 65 you’ll need to budget for health insurance to bridge the gap.

While a calculator can tell you whether you can afford to retire it can’t tell you your ideal retirement age. That ideal retirement age will be based on your savings, your health, your feelings about working, the benefits that are available to you through your employer and your access to healthcare. Someone who has healthcare through his or her spouse is more likely to be able to retire before reaching the Medicare eligibility age, for example.

Average Retirement Age

Why Your Retirement Age Matters

A recent Gallup poll found that the average retirement age in the US is 62. Of course, the average retirement age varies by profession. University professors retire later than teachers, for example. The average retirement age for teachers hovers around 59. In general, wealthier folks with high levels of educational attainment are more likely to continue working past the normal retirement age.

Federal employees have their own retirement norms. As a federal employee, your Minimum Retirement Age (MRA) is the minimum age at which you can retire and receive your benefits, referred to as FERS, after the Federal Employee Retirement System. MRAs range from 55 to 57 depending on the year of your birth.

Born in or after 1970? Your MRA is 57. The federal retirement age is something to keep in mind as you approach your 50s but reaching it isn’t the only thing standing between you and your FERS. You’ll also need to meet the requirements for years of service. Whether you can take what’s called “Immediate Voluntary Retirement” and still get full benefits is a combination of your age and years of service.

Preparing Your Finances for Retirement

Regardless of what age you’re considering retirement to be, it’s important to make sure your finances are in order and ready for that time. If you don’t properly prepare for retirement then you likely won’t be able to retire when you hit that age and you could end up struggling financially in your golden years. Here are a few things you can do to make sure your finances are prepared for the right retirement age for you.

  • Make a Plan: If you’re going to save a certain amount of money by a specific time then it will be pretty hard to do without a plan unless you have a very large income. It’s important to map out how you plan on getting to your goal.
  • Save Early: Start saving for retirement as early as you can so that you will have the money you need when retirement begins.
  • Consider Risk: The closer you get to your retirement age, the more likely it is that you’ll want to limit risk in your portfolio. You need to factor in potential risk as you get close to that day so that you aren’t forced into working longer due to a bad economy.
  • Work With an Advisor: It can be a lot easier for you to reach your retirement goals if you’re actively working with a professional who understands how to invest your money in order for you to hit your retirement age.

The Bottom Line

With advancements in healthcare, Americans are living longer after hitting the normal retirement age. A woman retiring at age 65 can expect to live another 20 years, a man 17. America’s median retirement age may be high relative to the average retirement age in other countries around the world, but it still leaves many years for post-work living. Don’t just save for retirement, plan for it. Figure out what you’ll do to enrich your days when work isn’t filling them.

Retirement doesn’t have to be an all-or-nothing affair. Though it’s common to speak of a single “retirement age,” many people retire in stages. They may cut back their hours or transition to a part-time job somewhere else. They may retire from their company but take on freelance or consulting gigs. Having a healthy emergency fund and a hefty amount of retirement savings gives you the luxury of retiring on your own terms in the way that feels right to you.

Tips for Getting Retirement Ready

  • Consider working with a financial advisor who can help you reach your retirement age by managing your money. According to industry experts, people who work with a financial advisor are twice as likely to be on track to meet their retirement goals. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Figure out how much you’ll need to save in order to retire comfortably. An easy way to get ahead on saving for retirement is by taking advantage of employer 401(k) matching.

Photo credit: © iStock/Susan Chiang, © iStock/EpicStockMedia, © iStock/cometary