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When Can I Retire?

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Updated August 16, 2022

Allyson Krause CRPP™, Managing Director Retirement Plan Services

Key considerations for retiring at the right time

For many people, retirement is the ultimate goal—the end of a marathon. Deciding when to retire is both an emotional and financial decision, and for some, it’s one of the hardest decisions in life. While no two finish lines look the same, there are some common requirements that should be met before you retire.

Of course, there are financial considerations going into retirement. You should have both short and long-term financial plans. You should know where your retirement income streams are coming from, what monthly expenses you’ll have, and how long your savings will last. You should have more than a vague idea of how you want to spend your time in retirement. What will give you purpose? What experiences do you want to have?

To help you make this important decision, here are five actions to take before you retire.

Calculate Your Monthly Expenses

Before you can determine your monthly expenses in retirement, you need to have a working understanding of your current household budget. You need to know what you spend each month during your working years in order to estimate your expected expenses during retirement.

Monthly expenses might include:

  • Housing
  • Utilities
  • Health insurance—in retirement you’ll no longer receive an employee group rate, so your expense for this may increase
  • Food
  • Taxes
  • Entertainment

The general guideline for determining your expected monthly expenses is about 75% of what your pre-retirement expenses are. This accounts for reduced commuting costs, potentially less debt in retirement, and not setting aside money for retirement savings.

While some people may feel comfortable on 75% of their current monthly budget, other people may want to spend more on things like travel, dining, hobbies like golf or boating, and charitable giving. Planning to spend 85% of your current monthly expenses can add a financial cushion for these activities.

Determine Your Retirement Income

Retirement income can — and should — come in multiple forms. You should first consider when you want to take your Social Security benefit. The earliest you can receive Social Security is age 62. At this age, you will receive approximately 25–30 percent less each month than if you waited until full retirement age, which is 66 if you were born before 1960 and 67 if you were born after. Waiting to take your Social Security benefit until age 70 can be extremely helpful if you can manage it. Your checks could be 24–32 percent more than if you took it at full retirement age. You can create a Social Security account to run personalized numbers.

Some retirees will receive a pension. Common in government and union jobs, pensions typically start paying out at age 65. Similar to Social Security, your pension amount will depend on when you decide to take it. Some pensions can be taken out early at a reduced rate and can be taken out later at a higher rate. Pensions are unique to your employer and typically offer retirement counselors, which is helpful to see your individual monthly payout.

Other retirement income may come from any retirement funds you have been saving. Typically, the guideline is to withdraw no more than 4% in your first year and to adjust for inflation and your needs in subsequent years. Looking at your expenses and your retirement income, have you saved enough money? You can use our retirement calculator to help you check to see if you are financially set for retirement.

Evaluate Debt and Personal Savings

It’s not necessary to have zero debt when you retire; however, large amounts of debt can be stressful while on a fixed income.

Before you retire, look at your debts and make a plan to reduce or eliminate them. Some debts are worse to carry into retirement than others. For example, high interest credit card bills, medical bills or a car loan add more strain to your retirement income than a fixed-rate mortgage would.

Sometimes carrying debt into retirement is unavoidable. If that is the case, prioritize which debts get paid down first and take action before you retire to reduce them. Using the “Avalanche Method” is mathematically the best way to pay down debt. This method involves listing your debts in order from highest to lowest interest rates, attacking the highest debt first while paying the minimum on all others. Once the highest interest debt is paid, move on to the next and so on.

In addition to reducing debt, you should also have a personal emergency fund of three to six months of expenses saved up. While nearing retirement, you should have closer to six, if possible. Having a personal emergency fund helps protect your retirement income from being used for anything other than the monthly expenses required to pay for your lifestyle. Additionally, should an emergency happen, having set aside some money can help you avoid going back into debt. Having funds set aside means you will be less likely to rely on a credit card to cover an unexpected cost.

Plan Your Time

Retirement is a major life transition. For some people, it’s stressful—not because of money—but because it can be hard to fill days with purposeful activities. Before you retire, have a concrete idea about what your passions are, what hobbies you want to pursue and what will make you happy. If full retirement provokes any feeling of anxiety, entertain the idea of easing into it. Sometimes a gradual retirement plan is the best one. Working in a consulting capacity or having a part-time job is a great way to ease into full retirement when you are ready.

Work With a Pro

Working with individuals who have been awarded the CERTIFIED FINANCIAL PLANNER™ (CFP®) certification, like those on Trust Point’s team, can help you see the big picture of your retirement. With expert knowledge, they can look over your expected expenses and income streams and identify opportunities to preserve or grow your wealth. They can review and balance your portfolio to account for your risk tolerance and in some cases, help you to comfortably retire early, should you want to.

Whether you’re nearing retirement or it’s still a ways off, Trust Point can help you find the best investment and savings options to manage and grow your wealth. As a fiduciary, we always act in the best interest of our clients by creating custom plans that incorporate tax and estate strategy alongside our financial advice and expertise. Visit our Retirement Planning page to get started.

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Allyson Krause CRPP™, Managing Director Retirement Plan Services