When should I retire? That is one of the most common questions we receive. It is one of our most significant financial decisions because on that day we shift from producing income to being forced to live on what we have already saved. We go from being a producer to being a consumer. We are like farmers who live fat and happy throughout the summer as we eat fresh and abundant crops each day, to one day shutting down operations for the fall and hoping what is stored up will get us through winter. As planners we refer to this as going from the accumulation phase to the distribution phase. People commonly celebrate and throw retirement parties, but I know first-hand the stress people experience with that major life decision.
Let me share my personal experience with planning for my own retirement. For most of my life I have regularly reviewed my personal retirement plan to make sure everything is on track. I am a planner after all. Once a year I do a major assessment where I look at each investment and evaluate how much I would need to retire and verify that all the numbers are still working. A few years ago when I was going through this annual process there was something very obvious that jumped out at me. As I opened my excel spreadsheet I noticed the date of my last revision which had been one year prior. I looked at that date and thought, “I have no idea how long I will live but of this one thing I am 100% certain. It will be one year less than it was last time I reviewed this plan.” I thought on it again and again, the reality that the older I get, the less financial risk I will have in retirement because the less money I will need to live out my life.
When should I retire? For some lucky ones, retirement is an optional matter based on personal wishes and goals. For most, the decision of when to retire is driven by a financial reality. They want to do it as soon as they are able, but not too soon that it creates unnecessary risk. I love to help people retire who have looked forward to it, but also remind them that when necessary, each year they wait can provide a double benefit. They will have one more year to save, but perhaps more importantly, one less year to have to live on those savings. Even another year or two of working can have a significant impact on your retirement peace of mind if your numbers are tight.
Like many people, I enjoy my work and can’t see myself fully retiring even when I do reach that magical age. But it’s nice to know I will have that option if needed, and especially nice to know that the longer I work, the less risk, not more, I will have in retirement.
Dan Wyson, CFP® is author of “The Gold Egg," and “21 Financial Myths” and owner of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 - 435-986-9525 – Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor