By Bleckley Dobbs, CFP®, RICP®
After the desk has been cleaned out and the party has been thrown, the last thing you want to do on the first day of retirement is wake up and think, “now what?” Many people focus much attention on the date of retirement, but the years following that date do not have nearly as clear and concise a plan. A simple exercise we are proposing today is creating your own “Retirement Timeline.”
Many factors play into building your retirement timeline other than just simply plotting your retirement date. Some of those factors include:
Re-evaluate your spending. A great time to start examining what your life will look like during retirement is when you become an empty-nester. With all of your children out of the house, you may have more free time to explore new hobbies or further delve into organizations or projects you have always been involved with. As an empty-nester, your spending habits will most likely change, which can give you a window to reevaluate your budget and even try a retirement spending “trial” to see how much you are truly spending and what you will need to have set aside to support your lifestyle once you retire. It is important to not let your bills grow to consume the extra income that is freed up by being an empty nester, as this can also be an ideal period for saving for retirement.
Where does Social Security eligibility fall on your timeline? Waiting to take Social Security can help if you live to/beyond your life expectancy because your benefits increase by 8%/year after full retirement age. You can take social security regardless of earnings at full retirement age (FRA), which is currently 66, but will increase to 67 over the next 10 years. By age and gender, here’s when Americans begin collecting Social Security on average:
|Age When Starting Benefits||% of Men||% of Women|
|65 – 66||34%||27%|
|67 – 69||7%||6%|
The center for Retirement Research at Boston College
As you can see, only about 10% of people delay benefits past full retirement age. Through diligent planning, you can delay your need for Social Security income past your FRA and take advantage of the increased benefits when you do begin taking Social Security. Please see our article on Social Security FAQs for more information about delaying benefits.
Be realistic about how long you will work. According to a recent Gallup report, the expected retirement age among non-retirees was 66 while the average actual retirement age was 62 in the year 2014. The average age at which Americans expect to retire has been consistently higher than the average age at which they actually retire since Gallup began tracking both. It is not necessarily negative to have a goal of working into your late 60s, but having a plan if you retire earlier than expected is important.
Where does Medicare eligibility fall on your timeline? Working until age 65 to keep employer provided health insurance until eligible for Medicare can prevent having to look to the marketplace for health insurance plans.
What do you want to do, and when do you want to do it (And how much will it cost)? Upon retirement, many people often reference their career and what they have retired from. It is important to also think of what you wish to retire to and plan accordingly. If your idea of retirement has always been using your new free time as an opportunity to travel, you most likely want to plan for those big trips early on rather than waiting until you are older.
Be realistic about your life expectancy. The Social Security Administration goes to great lengths to estimate life expectancy. According to their data, a man reaching age 65 today can expect to live, on average, until age 84.3 while a woman turning 65 today can expect to live, on average, until age 86.6. Education, healthcare, and your own personal health history will impact these averages. We find our clients are well-educated and have fortunately had access to good healthcare. Because of this, realistically our clients should plan to live for 25+ years following their retirement. If you are curious about calculating your own life expectancy based on your personal information and family history, visit Living to 100.
Remember, at Lucien, Stirling & Gray we view your retirement planning as an ongoing, dynamic process rather than a one-time, static plan that can quickly become obsolete. To reiterate what we said in Retirement Resolutions Pt. 1: It can take a long time to prepare financially, mentally and emotionally for retirement. Waiting until the last minute to contemplate challenges in this transition can cause anxiety. By beginning serious planning at least five years (and preferably more!) before you think you will want to retire can alleviate much of the stress associated with this life transition.