The question “When Can I Retire?” isn’t about reaching a specific age – it’s about achieving financial independence.
While conventional wisdom points to age 65 as the standard retirement age, your ideal retirement date depends entirely on your financial readiness.
This comprehensive guide will show you exactly how to determine when you can retire based on your unique situation.
By: William Hinder, EA | February 8th, 2025
The conventional approach to retirement planning often starts with arbitrary rules of thumb, like saving 10% of your income or aiming for a million dollars in your retirement account.
However, these oversimplified guidelines fail to account for your unique situation. Instead, let’s explore a more sophisticated approach to determining when you can retire.
Even the traditional notion of retiring at 65 is outdated. Modern retirement planning focuses on cash flow rather than age milestones. Your retirement readiness depends on whether your investments and other income sources can sustainably support your desired lifestyle. This shift in thinking transforms retirement planning from a waiting game into an achievable financial goal.
Many Americans continue working past traditional retirement age simply because they haven’t reached their financial goals, while others manage to retire comfortably in their late 50s or early 60s.
The key difference lies not in their age but in their preparation and understanding of their true financial needs.
The foundation of retirement planning begins with a clear understanding of your future spending needs. While many financial calculators suggest you’ll need 70-80% of your pre-retirement income, this oversimplified approach often falls short.
Instead, you need to conduct a comprehensive analysis of your expected retirement expenses. We find that most retirees need at least 80-100% of their pre-retirement income.
Before you can answer “when can I retire”, you need to know how much money you’ll need.
To figure it out you’ll need to calculate:
Housing costs can be a significant portion of retirement spending, typically consuming 30-40% of a retiree’s budget. Even with a paid-off mortgage, expenses like property taxes, insurance, and maintenance typically increase over time. Many retirees underestimate these ongoing costs, particularly as homes age and require more frequent repairs. Historical data shows that home maintenance costs typically run 1-4% of a home’s value annually, with costs trending higher as the property ages.
Healthcare represents another crucial expense category that often surprises retirees. Recent studies indicate that the average couple retiring at 65 needs approximately $315,000 saved solely for healthcare costs. Medicare coverage gaps (lack of dental coverage on Medicare Part B) and out-of-pocket expenses can significantly impact your retirement budget. These costs typically increase at a rate higher than general inflation, often 5-8% annually.
Transportation costs, while often overlooked, remain significant in retirement. Even without a daily commute, the average retiree can spend $6,000-$8,000 annually on transportation, including vehicle maintenance, insurance, and eventual replacement.
Beyond these core expenses, retirement spending includes various discretionary costs that contribute to your ideal lifestyle.
Travel, hobbies, entertainment, and family activities all require careful financial planning.
Research shows that retiree spending often follows a “smile” pattern – higher in early retirement during the active years, lower in the middle years, and potentially higher again in later years due to medical expenses.
Oh yeah, and don’t forget these often-overlooked expenses:
Pro tip: Track your expenses for at least 3-6 months before making retirement projections. Many retirees find they spend 80-100% of their pre-retirement income, not the 70% that many calculators assume.
A successful retirement requires multiple income streams working in harmony.
Social Security typically forms the foundation, but maximizing these benefits demands strategic planning. Each year you delay claiming Social Security beyond your full retirement age increases your benefit by approximately 8% until age 70.
For example: If your full retirement age benefit is $2,000 monthly, waiting until 70 could increase it to $2,480. That’s an extra $5,760 annually for life.
See how much you could be entitled to and when by making a free account at SSA.gov/myaccount
Investment income plays a crucial role in bridging the gap between Social Security and your spending needs.
The widely discussed 4% rule suggests withdrawing 4% of your investment portfolio annually, adjusted for inflation to avoid depleting the principle.
For example: If you need $80,000 annually and receive $30,000 from Social Security, you’ll need to generate $50,000 from investments.
Using a 4% withdrawal rate, that means you’d need $1.5 million invested ($50,000 × 30 years).
Again, this is just an oversimplified rule of thumb and the idea that everyone could withdraw 4% per year and not run out of money is ludicrous.
However, we routinely recommend anywhere from 3%-5.5% withdrawal rate depending on how early or late someone retires, as well as how much they have saved, their retirement and estate goals, as well as some economic indicators.
Using tax-efficient withdrawal strategies can significantly impact your retirement income.
Some of the largest expenses for retirees come in the form of taxes so you must consider the tax implications of withdrawals from different account types:
Traditional retirement accounts (401(k)s, IRAs, TSP) trigger ordinary income tax on withdrawals. Required Minimum Distributions (RMDs) begin at age 73 (or 75), potentially forcing withdrawals at inopportune times.
Roth accounts offer tax-free withdrawals in retirement, providing valuable flexibility in managing your tax bracket. Strategic Roth conversions during lower-income years can reduce future tax liability. Read our article on Roth conversions here.
Taxable investment accounts offer potential tax advantages through long-term capital gains rates and the ability to harvest tax losses during market downturns, as well as the step up in basis for estate planning purposes.
The Importance of Asset Allocation in Retirement
Your investment strategy should evolve as you approach and enter retirement. Traditional advice suggests becoming more conservative over time, but maintaining some growth potential remains crucial for long-term success.
A modern retirement portfolio might include:
Regular rebalancing helps maintain your target allocation while potentially enhancing returns through systematically buying low and selling high.
Retirement planning isn’t just about reaching a certain number; it’s about ensuring that number sustains you through various economic conditions and life events.
This is where the concept of a retirement safety net becomes crucial.
Your plan must account for various risks that could impact your financial security. Market volatility, inflation, healthcare costs, and longevity all pose significant challenges to your retirement plan.
Sequence of returns risk presents a particular threat in early retirement years. Poor market performance combined with portfolio withdrawals can permanently damage your retirement savings.
This risk necessitates a more conservative investment approach in the years immediately before and after retirement. We refer to this as the “fragile decade”, and this time period can overwhelmingly dictate future portfolio withdrawals. If you’re fortunate enough to retire in your younger years, this time period could be longer.
A comprehensive safety net should include multiple layers of protection:
Emergency Reserves: Maintain two years of expenses in cash equivalents to avoid selling investments during market downturns. This buffer provides crucial protection against sequence of returns risk – the potential impact of poor investment returns in early retirement years.
Inflation Protection: Your investment strategy should include growth components to combat inflation’s erosion of purchasing power. While historical inflation averages around 3%, recent years have demonstrated how quickly this can change. Consider investments like TIPS (Treasury Inflation-Protected Securities) and dividend stocks as part of your inflation-fighting strategy.
Healthcare Coverage: Beyond basic Medicare, consider supplemental insurance policies to cover potential gaps. Long-term care insurance or a dedicated healthcare savings fund can protect against catastrophic medical expenses. The average long-term care stay costs over $100,000 annually, and lasts for almost 3 years, making this protection crucial for preserving your retirement savings.
Determining when you can retire involves bringing together all these elements into a comprehensive timeline. This process starts with your current financial situation and projects forward, accounting for savings, investment returns, and changing expenses.
Creating a realistic retirement timeline involves synthesizing all these elements into a comprehensive plan.
Start by calculating your required annual income in today’s dollars, then project how this might change throughout retirement.
Factor in major life events and transitions:
Consider creating multiple retirement scenarios based on different market conditions and spending levels. This stress testing helps ensure your plan remains viable under various circumstances.
The question “when can I retire?” doesn’t have a one-size-fits-all answer. Your retirement date should be determined by your financial readiness, lifestyle goals, and personal circumstances – not by reaching a certain age.
Start by understanding your spending needs, both essential and discretionary.
Build a robust income framework that includes Social Security, investment income, and other sources.
Create a safety net to protect against risks like market downturns and inflation.
Finally, develop a timeline that brings all these elements together into a comprehensive plan.
Before clocking out for good, ensure:
Retirement planning isn’t a one-time event. We tell our clients that their financial plan is a living, breathing document that requires regular reviews and adjustments to ensure your plan remains aligned with changing circumstances, market conditions, and personal goals. Annual reviews of your investment portfolio, spending patterns, and overall financial strategy help keep an accurate and up to date retirement plan.
Pursuit Street Advisors helps our clients with all of the above plus:
Determining when you can retire requires careful analysis of your spending needs, income sources, and risk factors.
Focus on building a sustainable cash flow rather than reaching a specific age or account balance. With proper planning and regular monitoring, you can confidently answer the question “when can I retire?”
The key to successful retirement planning lies in starting early, staying informed, and remaining flexible as circumstances change. Remember that retirement planning is a personal journey – what works for others may not work for you. Focus on creating a plan that aligns with your unique goals and circumstances.
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