When is the best time to retire?
When do you plan to retire? A study by Statistics Canada showed that 45% of Canadians hoped to retire before the age of 65, 24% planed to retire at age 65 or later and 31% just did not know. Where do you fit into these statistics?
The bottom line is retirement can happen whenever you want it to happen. The answer is personal. Sometimes, there are what I call ‘triggers’ to retirement:
- Employer – At times, people retire because their employers were downsizing and they were given incentives to retire early.
- Time/tenure – Sometimes people work until they have earned enough pension credits or they reach a special time like 25, 30 or 35 years of employment service.
- Change – Others retire just because they need a change in lifestyle. They may be tired of the grind or not satisfied with their work.
- Money – Believe it or not, some people actually retire because they have enough money to do so. Many will find this hard to believe but it is possible.
- Plan – For some, retirement comes as a result of a plan. Few people actually plan properly for retirement
Some thoughts on the timing of retirement
Thirty years ago, people typically started work at a fairly young age (age 20), worked to 65 and then statistically lived to age 72. They had many years to earn and save and few years to spend. The fact is normal retirement has been 65 for a long time. Think about it, all of our retirement benefits like Canada Pension Plan (CPP) and Old Age Security (OAS) are geared to a retirement at age 65.
Times have changed a bit. People are now starting to work later because of school and post secondary education (age 25). People are also retiring earlier. Today, Freedom 55 has branded the thought in millions of people that the time to retire is age 55. While this is great in theory, it is not that easy to achieve in reality.
While everyone wants to retire early, the fact is the average retirement age is about 62 for men and 58 for women. The average retirement age has been hovering around 60 for a quite a few years.
So, if you started working at age 25 and you worked to age 60, you have 35 years of work and accumulation. The other change is that life expectancy is growing and people are living longer. If life expectancy is about age 80, that means we have less time to accumulate and more time to support our retirement income. Early retirement and longer life expectancy means it is more important that ever to plan properly for retirement.
Working after retirement
One interesting change in society is that more and more people are actually returning to work after retirement. According to Statistics Canada, 40% of Canadians that retire have gone back to work either full time or part time after retirement. Obviously, the younger the retiree, the more likely they were to return to some level of work. This phenomenon might not just be attributed to having enough money. It might be boredom, shortage of workers, not enough money, or the painful bear market.
The bottom line
The fact is aggressive goals require aggressive actions and despite the merits of freedom 55, retirement at age 55 is and aggressive goal that requires aggressive action. I’m not saying it can’t be done but you need to have some key variables working in your favour:
- You are investing a good sum of money for the future. A good rule of thumb is that if you want to retire early, you need to invest 25% of your gross income. The later you start, the more you need to save.
- Earn high rates of return on your money. Aggressive goals may require that you take bigger risks in your portfolio to earn higher long-term rates of return. The lower the return the more money you will need to save.
- You have a modest lifestyle need. The less money you need to spend, the easier it is to save enough money to support that lifestyle. For example, early retirement is much easier to achieve if you only need 50% of your pre-retirement income instead of 70%.
You may not need all these variables working in your favour but you certainly will need some.
Retirement is best achieved through planning. The fact is you can retire whenever you want. The trick is to understand what it takes to make it happen. Rather than let retirement control your life, you can take control by planning and understanding what is necessary to achieve the goals you set out.