The age of 65 is the traditional time when people stop working and retire to live off the fruits of their labor. That doesn’t mean 65 is the ideal age for everyone to retire, though. In order to retire at age 65, it’s necessary to evaluate your current assets and their income-producing potential, as well as expected post-retirement expenses, including life expectancy, healthcare costs and any desired financial legacy. You can increase the likelihood of having a successful retirement plan by working with a financial advisor.
Evaluate Current Assets and Future Income
The average age when people retire is 62, according to a 2021 Gallup poll. However, the Social Security Administration reports that the average age at which people begin claiming retirement benefits is very close to 65. For men the precise number is 64.7 and for women, 64.6. Based on the Social Security data, if you retire at 65 you will have plenty of company.
The process of planning to retire at 65 has a lot of moving parts. However, the basic elements consist of just two moves: assessing your current financial position and estimating your post-retirement financial needs. This step consists of adding up all you own and expect to own, focusing specifically on your assets’ ability to produce post-retirement income. Here are some of the typical sources of income people rely on in retirement:
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Social Security benefits
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Tax-advantaged retirement savings such as 401(k) and IRA plans
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Taxable assets such as stocks and mutual funds
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Cash, including bank accounts and certificates of deposit
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Home equity
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Earnings from a part-time job
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Pension plan benefits
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Inheritances
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Rental and royalty income
Most retirees won’t have all these sources. However, nearly all retirees can expect to receive Social Security benefits. About 65 million Americans received Social Security benefits, amounting to nearly nine of 10 people aged 65 or over.
The maximum Social Security benefit for 2022 is $4,194 per month. However, that much only goes to high-earning people who have waited until age 70 to claim their benefits. The average monthly benefit in 2022 came to just $1,657. It’s important to consider that claiming your benefits before age 70 results in a significantly lower benefit.
Assess Future Income Needs
Now it’s time to create a post-retirement budget. This will let you estimate whether and how comfortably you can actually retire at 65. Planners sometimes recommend using a percentage of pre-retirement income to estimate how much you’ll need after retiring.
However, recommendations vary widely, from as little as 50% to as much as 80%. Much depends on individual circumstances. To get the most accurate projection, consider all the following costs individually and come up with a total for your specific situation.
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Housing expenses: This includes utilities, insurance and rent or mortgage.
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Healthcare costs: At age 65, you become eligible for Medicare, which will cover the majority of health costs. However, you are still responsible for paying the Part B premium ($170,10 in 2022), as well as any deductibles and co-payment.
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Other necessary expenses: These include food and transportation.
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Debt payments: This may include automobile or student loans.
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Family obligations: This could include helping children through college or contributing to the support of a parent.
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Federal income taxes: These are due on part-time job earnings and Social Security payments, as well as withdrawals from retirement accounts other than Roth accounts.
Other Considerations for Retiring at 65
How long you expect to live after retirement has a major effect on planning your age of retirement. The Social Security Administration has a free, online basic life expectancy calculator that looks at your age and gender. It shows that a man turning 65 in 2022 can expect to live, on average, another 19 years until about age 84.
Another free online calculator by a Wharton professor looks at additional factors such as whether you smoke cigarettes, exercise regularly and wear your seat belt to produce a somewhat more individualized result. Of course, these are only estimates, but calculating life expectancy is a key part of retirement planning.
Your post-retirement lifestyle also plays a large role. If you expect to travel extensively, for instance, you’ll need to build those costs into your budget and find some way to generate adequate income. The location where you choose to retire also matters a lot. For instance, the cost of living in Hawaii is almost twice as has as it is in Mississippi, according to World Population Review.
Bottom Line
If you’re like most people, you can retire at 65. However, the decision calls for carefully assessing a number of factors, including your expected expenses and ability to produce income post-retirement. Major income factors include your expected Social Security benefit, how much you have saved in retirement and other accounts, the amount of home equity you could tap and whether or not you want to work part-time.
Tips on Retirement
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The decision about when to retire is one of the most important and challenging many of us will make. A financial advisor can help you decide on a good time, as well as create a plan for the future.. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three 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.
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Use our free retirement calculator to gauge your progress toward the retirement goals you have set for yourself.
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The post How to Retire at 65: Step-by-Step Plan appeared first on SmartAsset Blog.
