Deciding when to retire

Once upon a time, many companies had a mandatory retirement age for their employees. Gold watches were awarded, parties were had and good-byes were said. And on the next day, the company pension kicked in, the rocking chair was set out on the front porch and life was good. For better or for worse, times have changed.

Today, retirement is more complex. Sometimes you pick when you retire. Other times, the date is picked for you — as in the “voluntary retirement” some companies offer when they cut their work force. Some people retire early, while others hang in for as long as they can. Even the definition of retirement has changed to reflect today’s more vigorous and active retirees. For many, retirement is a time to take on new challenges and discover more opportunities.

Does early retirement make sense?

Early retirement sounds good to many people. But leaving the work force early can be very difficult when you consider the financial realities.

Savings turn into withdrawals. When you stop working, you switch from making contributions to your retirement plans to withdrawing money from those plans. The longer you can work, the more you can save.

Retirement lasts longer. Our life expectancy rates have gone up. That means the earlier you retire, the more years you will be dependent on your savings.

Guaranteed income may go down. Your Social Security benefits will be reduced if you start taking them before you reach the official retirement age — currently 66 for most people.

Penalties for early withdrawal. If you are under age 59½, you will pay an IRS 10% penalty tax for IRA withdrawals unless an exception applies. Plus you will pay income tax on the full amount of withdrawals from Traditional IRAs. On the other hand, most employer qualified plans like 401(k)s allow penalty-free withdrawals at age 55 if you are retired (you still pay income tax on the money).

Health insurance costs can rise. Medicare doesn’t start until age 65. If you retire before then and you don’t have retiree health benefits from your employer, you may have to pay for your own individual policy.

There’s a lot to be said for staying in the work force: You can put more money into savings. The number of years you must rely on your savings for income decreases. And you’ve got more time to plan your new life.

Delaying the day

There are several advantages to delaying retirement:

• A bigger egg – More money going into your retirement accounts means you’ll probably have a larger nest egg.
• Fewer withdrawal years – If you delay your retirement by even a few years, you may be able to take larger withdrawals because you’ll make fewer withdrawals over a shorter time. Either you can pay yourself more, make your money last longer or even leave a larger legacy.
• More time to plan – If you’ve got big plans for retirement — like starting your own business — postponing gives you more time to get everything lined up.

All that said, sometimes it just comes down to a gut feeling. When you’re ready, you’re ready. So talk to your financial professional to understand what your retirement schedule looks.

Consider life insurance. Term life insurance can help protect those you love or who are dependent on you. Cash-value life insurance offers protection plus the potential to accumulate cash value. Ask your insurance professional about how cash value life insurance can provide both death benefits and additional benefits that can help you and your family during your life and beyond.