The Importance of Choosing the Correct Retirement Date

This past weekend, my wife and I were talking out on our patio and the topic of retirement came up. Again. The retirement subject comes up quite often in our house. We like to talk about getting to retirement and what we’re going to do to fill all those days even though we’re still a long ways away from actually retiring.

Rocking chair

I can’t imagine that we’re all that different from most people. We want to get out of the rat race and enter retirement as soon as possible so we can start doing what we want on our own schedule. But the difference between just retiring and retiring comfortably can be big. Retiring comfortably requires a lot of forward planning, sacrificing and, most importantly, saving.

Ask most people when they want to retire and you’ll probably sense a theme. They want to retire early. Some will and will find out too late that they don’t have the resources to support their retirement lifestyle. Then, they’re left with the unfortunate choice of needing to scale back on their lifestyle or do the unthinkable and actually rejoin the work force.

People who reach this point have chosen the wrong retirement date (and have probably failed to do the proper planning before exiting the work force in the first place). If you need to make that choice, it’s already too late. If you need to re-enter the work force, you’ll likely have a challenge getting the work and salary you want (your employer will have probably filled your old job with someone else) and if you need to downsize your retirement plans you’re probably going to end up being unhappy. It’s a lose-lose proposition.

Some people believe that they’ll be all set since they’ll be able to draw a monthly Social Security check. One of the bigger savings myths out there is the belief that Social Security will support them in retirement. Social Security is meant to be a supplement to retirement income, not a replacement for it. It’s estimated that Social Security can be expected to provide just 25-30% of your income in retirement. If you’re one of those people that is counting on Social Security to carry you through retirement and has little saved up outside of that, you may want to consider staying in the work force a little longer.

When choosing a target retirement date, make sure you understand first what you want your retirement to look like. Do you want to travel the world? Do you want to relocate to a warmer climate? Do you want to stay at home and focus on those hobbies you’ve been ignoring? If you plan on spending more in retirement due to things like travel, you’ll need to do one of two things (or both) – save more in your working years to be able to afford your new lifestyle or remain working longer in order to give you the time necessary to build up your nest egg.

If you decide to retire too early, don’t plan for how much you think you’ll be spending in retirement or count on Social Security to provide a large percentage of your retirement income, you could be heading down a dangerous path. Spend some time crunching the numbers or work with a financial planner to map out what you want and how you’ll get there. If you find that your current level of saving will support what you want to do in retirement, give yourself a pat on the back and continue pushing forward to retirement! If you find you’ll be a little short, figure out if you’re comfortable scaling back on your plans, if you’re prepared to work an extra year or two or ready to up your savings rate. The important thing is that you give yourself time make adjustments in case you need to.

Retirement should be a fun and relaxing time where things are done on your terms. Don’t let a lack of preparation call the shots for you.

Photo credit: InAweofGod’sCreation

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Author Info

This post was written by David Dierking. David lives outside Milwaukee, Wisconsin and has been working in the financial services industry for over 13 years with a background in investments, accounting, and marketing. He earned his Chartered Financial Analyst designation from the CFA Institute in 2004 and was recently published in the Milwaukee Business Journal. You can also check him out at The Ultimate Fit Challenge

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