Should You Retire in 2018?
The decision to retire isn't one to be taken lightly. If you're thinking that 2018 will be the year you bring your career to a close, be sure to ask yourself these key questions first.
1. Are my savings at a healthy level?
Though there's no single number to amass to feel like you've saved "enough," as a general rule, you should aim to have roughly 10 times your ending salary socked away before you retire. That's what investment giant Fidelity recommends, and frankly, it's good advice. So if your savings level isn't anywhere close, then it's probably best that you work a few more years before calling it quits for good.
Here's another way to look at it: Most retirees need around 80% of their former income to live comfortably. This figure takes expenses like healthcare and leisure into account -- expenses that tend to rise in retirement. Now as a general rule of thumb, it's a good idea to plan on withdrawing roughly 4% of your savings each year in retirement. This means that if you have $800,000 in savings, you'll get about $32,000 a year. Furthermore, assuming you're at least 62, you'll also get to collect Social Security, and for the purpose of our example, we'll put your yearly benefits at $16,320, which is about what the average retiree collected last year.
Assuming you don't have any other sources of income, that leaves you with a little over $48,000 a year to live off. Now if you're earning around $60,000, that number works. But if you're used to living off a $100,000 salary, you may want to think twice before retiring this year, and instead aim to sock away more money before pulling the trigger. The good news is that workers over 50 can contribute up to $24,500 to a 401(k) annually, so if you stay on the job a couple of years longer and max out during that time, you'll have an extra $49,000 to play with in retirement. Just as importantly, you'll avoid tapping your nest egg sooner, thus allowing it to last longer.
2. Have I reached full retirement age for Social Security purposes?
If you've saved a ton of money in your IRA or 401(k) and aren't really counting on Social Security to pay the bills, then you don't need to worry about how old you are when you retire. But if you're planning to fall back on those benefits in retirement, then you'll need to think about whether retiring this year hurts you from a Social Security perspective.
In a nutshell, your Social Security benefits are calculated based on your 35 highest years of earnings, but the age at which you first claim those benefits can cause them to go up, go down, or stay the same. If you wait until your full retirement age, which is 66, 67, or somewhere in between, to take benefits, you'll collect the exact amount you're entitled to based on your work history without a reduction or boost. But if you file for benefits early, you'll lower your payments by a certain percentage for each year you collect them before full retirement age.
There's also a flipside. If you hold off on Social Security past full retirement age, you'll accrue delayed retirement credits that give your benefits an annual 8% boost. So if you're thinking of retiring this year, figure out how your age might impact your Social Security payments, and make a smart decision around that. If you know your savings level isn't all that great, and you're a year shy of full retirement age, it probably pays to spend another 12 months in the workforce than rush to leave it immediately.
3. Do I have a plan for the future?
Many people think of retirement as a time to relax, travel, and enjoy life to the fullest. But unfortunately, countless seniors have the opposite experience. Rather than relish their unstructured schedules, many ultimately find themselves bored, restless, and even depressed. In fact, retirees are 40% more likely to suffer from depression than working adults.
Before you decide to retire this year, think about how you'll actually spend your days once you no longer have a job to report to day in and day out. Will you take classes somewhere? Volunteer? See the world? And if you're aiming for the latter, do you really have enough money to make that happen?
Retirement can be a fulfilling period of life provided you go in emotionally and financially prepared, but if that isn't the case, then it pays to keep working until you figure things out. This especially holds true if you like your job and are physically able to keep doing it for the time being.
Since 2018 has only just begun, it's fair to say that you still have plenty of time to figure out whether this year will actually mean retirement for you. But no matter what you ultimately choose, be sure to carefully contemplate the above factors so you don't wind up regretting your decision either way.
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