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Tessa Campbell
June 21, 2024
Retirement isn't one size fits all. Some people hustle to retire in their 40s, while others work well into their 60s and 70s. When you should retire depends on how much you predict you'll need to maintain a comfortable retirement based on your financial situation, lifestyle, location, and expected expenses.
Here are some of the best retirement planning strategies in 2024 and how to calculate how much savings you'll need for retirement.
Understanding retirement age
The best age to retire in the U.S. varies from person to person and is determined based on your Social Security benefits estimation, financial readiness, reliable income streams, and lifestyle considerations.
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When you should retire depends on your lifestyle, income sources, and other personal factors. Halfpoint Images/Getty Images
The full retirement age (the age at which they can receive full Social Security benefits) for people born in 1955 is 66 years and two months. People born in 1960 or later reach full retirement at an age closer to 67. Reduced early retirement benefits become available at age 62.
But in many cases, Social Security won't be enough to cover all expenses in retirement. Most people need income from savings and investments in addition to guaranteed supplemental income.
Additionally, the current retirement crisis in the U.S. threatens the longevity of Social Security benefits. The 2023 Social Security and Medicare Trustee annual report projects that trust fund reserves will only be able to cover about 83% of benefits by 2035.
Average retirement age in the U.S.
The average retirement age in the U.S. is 63, according to the 2024 Mass Mutual Retirement Happiness Study. The study found that generally, people expected to work longer than they actually did and often stopped working for unforeseen reasons like health issues and disability.
People may also leave the workforce after being offered an early retirement package from their employer. In that case, seeking part-time employment to offset some expenses is generally in your best interest.
Factors influencing retirement age
Retirement age is influenced by various factors, such as profession, lifestyle, expected lifespan, marital status, disability, education levels, and economic conditions and status. Research examining retirement expectations versus reality in 2023 found that, on average, people retire younger than originally planned.
Work conditions, health, and motivation can also significantly impact how long someone can delay retirement, especially for blue-collar workers. Physical and psychological strain can cause older workers to retire sooner than expected.
Married individuals and wealthier folk are more likely to retire early. However, those who are widowed or diagnosed with a major illness (for themselves or a spouse) are also more likely to leave the workforce sooner.
Early vs. late retirement considerations
The earlier you retire, the more likely you will run out of savings. That's why experts advise clients to delay withdrawing from their retirement savings to give their investments more time to grow and compound. The same logic applies to receiving Social Security benefits.
Early retirement allows you to spend more time with your friends and family and focus on non-work-related hobbies and interests. While this may sound like a dream come true for many, ensure you have a foolproof long-term retirement plan that won't lead you to run out of funds prematurely. Factor in the potential for large unexpected expenses (like major home renovations and health issues), cost of inflation, and other lifestyle considerations.
Retiring later gives you more time to contribute to your nest egg without touching the funds and more years you can get after or pre-tax benefits when contributing to your retirement plan. Workers age 50 and older can also make annual catch-up contributions to a traditional or Roth 401(k) or IRA.
Financial readiness
Calculating your retirement savings goal
You can analyze if you're on track to afford a comfortable retirement with Business Insider's free retirement calculator. This calculator factors in your age, estimated retirement age, annual income, monthly contributions, and how much you already have saved.
Whether you decide to retire the day Social Security benefits kick in or not, it's important to consider the best time to retire financially. That is, when your Social Security, investments, and savings accounts combined can generate enough income to cover your ideal retirement lifestyle.
Calculating your Social Security benefits estimation
You can also use a calculator to determine how much you could get in annual Social Security benefits. According to SmartAsset's Social Security calculator, a 34-year-old whose annual income is $80,000 could begin claiming about $54,832 a year in Social Security if they retire at age 66 (that's assuming they work for 35 years and claim the benefits at their designated retirement age).
If that person figures they'll need a pretax total of $100,000 a year during retirement, Social Security will cover about half of their annual expenses. The other $45,168 will probably come from their investment portfolio.
Remember that Social Security income may also be subject to federal and state income taxes.
Assessing your current savings
How much money you already have set aside for retirement is a big factor in determining when it will be feasible for you to stop working. Remember that retirement savings in retirement plans like IRAs and 401(k)s grow over time due to compound interest and investment opportunities.
The 4% rule states that you must have enough money socked away to start withdrawing 4% from your portfolio during your first year of retirement, increasing the withdrawal each year to cover inflation for 30 years. However, this isn't a hard-and-fast rule.
Despite proven success for some retirees, the 4% rule has been criticized as an overgeneralized strategy. Depending on your age and the type of investments you have, you may require a bigger or smaller nest egg. Inflation and salary increases should also be considered when determining if your current monthly savings and investments will be enough to cover your golden years.
It's important to start saving from a young age. Retirement may feel like a lifetime away to someone in their teens or 20s, but the most effective way to grow your assets and build long-term wealth is by contributing what you can over time. Money in a 401(k) or IRA will have more time to grow and compound. Plus, the further out you are from retirement, the more risk (and possibly higher returns) your investments can take.
Income sources in retirement
Social Security benefits in retirement
America's official retirement age — when workers can begin to claim their full Social Security benefits — is between 66, depending on birth year. Medicare benefits kick in at age 65. Delaying Social Security benefits increases the eventual monthly payout, but Social Security alone won't cover a comfortable retirement for most people.
As of May 2024, the average monthly Social Security benefit is about $1,770. The maximum monthly payout for someone retiring in 2024 is $3,822. In most cases, Social Security is generally considered supplemental income to an individual's retirement savings account.
Pension and 401(k) plans in retirement
Pension and 401(k) plans are employer-offered retirement plans for employees to build long-term wealth through regular contributions. Pensions are traditional, powerful retirement funds with fixed, pre-established benefits. Employers are responsible for providing a certain dollar amount to an employee's account based on employment years and earnings.
A 401(k) plan is considered one of the best retirement plans because of growth earning potential, tax benefits, compounding power, and employer-match benefits. You can contribute up to $23,000 in 2024, and individuals age 50 and older can contribute additional "catch-up" contributions of $7,500.
Health Savings Accounts in retirement (HSA)
Health Savings Accounts (HSAs) are investment accounts with similar compounding power and tax advantages as retirement accounts. The funds in HSAs are designed to cover medical expenses (something that come up a lot in retirement) and are funded by pre-tax dollars. Withdrawals are also tax-free when used for qualifying medical expenses like vaccines, hospital care, and eye exams.
Unlike FSAs, HSAs roll over from year to year and, for that reason, are often used as a sort of "triple tax-advantaged" supplementary retirement account. Once you're over age 65, you can withdraw money from your HSA for any cost, penalty-free. Note that you will have to pay taxes on the income if you aren't using it for qualified medical expenses.
Bear in mind that, like retirement accounts, HSAs have an annual contribution limit, and you must be enrolled in a high-deductible healthcare plan in order to use one.
Personal savings and investments in retirement
You can also save for retirement in an individual brokerage account or IRA for greater investment flexibility and additional tax benefits. Traditional and Roth IRAs are low-cost retirement savings plans that can be opened in addition to or in place of a 401(k) or pension plan.
Roth IRAs can also double as emergency funds. Original contributions (minus gains) can be withdrawn at any time penalty-free. This liquidity is important if you need funds for unexpected medical expenses, home renovations, or a job loss. However, many experts caution against this strategy for fear of losing out on growth in your retirement plan — so if you need to withdraw money, you'll want a plan to replace it as soon as possible.
While you won't get the tax advantages and compounding associated with contributing to a designated retirement account, investing through a brokerage account can be a great additional savings opportunity if you've maxed out your 401(k) and/or IRA. Regular brokerage accounts also have more flexibility than standard retirement plans.
Lifestyle considerations
People often define a "comfortable" retirement as one where they can maintain their current lifestyle without financial strain. When envisioning your retired life, consider lifestyle considerations like vacations, locations, leisure activities, and hobbies.
To calculate how much you'll need annually in retirement, consider your "needs" and "wants," says Bobbi Rebell Kaufman, CFP founder and CEO at Financial Wellness Strategies.
This includes costs such as housing, food, and health insurance. Factor in the increase or decrease in the cost of living and tax considerations if you plan to move to a new city.
Expert tips and advice
Consulting with a financial advisor
The best way to figure out when you can realistically retire — and how to stay on track to meet that goal — is by consulting with a financial advisor. Financial advisors like CFPs are professionals who consider your entire financial picture to build a personalized financial plan.
Financial plans are comprehensive, regularly adjusted plans that address wealth-building strategies, tax-optimization strategies, debt consolidation, and retirement. To create a strong plan, you must thoroughly evaluate your current financial situation and long and short-term goals.
The best online financial advisors can help you create a personalized plan to manage your money better, set realistic budgets, and prepare for potential risks.
Common mistakes to avoid
- Applying for Social Security benefits too early: While you may be eligible to start receiving Social Security benefits at age 62, you'll be taking smaller portions for a longer period of time. Typically, it's better to delay receiving Social Security benefits for as long as possible. You'll receive the maximum benefit at age 70, so that's the ideal time to start accepting payments.
- Forgetting to implement a realistic budget and lifestyle: Once you stop working, consult a financial advisor/planner to create a realistic monthly budget to prevent overspending your savings. Maintaining a realistic budget allows you to spend on hobbies, leisure activities, etc., without fearing running out of money too quickly.
- Not considering healthcare costs: Along with implementing a new budget, you'll want to ensure you're considering potential healthcare costs for you, your spouse, or other dependents in your financial plan. The older you get, the greater your chance of spending on unexpected healthcare-related expenses and long-term care.
Consulting a financial advisor about your individual situation is the best way to prevent common retirement mistakes.
FAQs
What is the average retirement age in the U.S.?
The average retirement age in the U.S. is 63 years old, according to Mass Mutual. Most people expect to work longer than 63 but end up retiring for unforeseen reasons like health issues, disability, and widowhood. Early retirement, and the age you can start receiving partial Social Security benefits, is 62.
How much money do I need to retire comfortably?
How much money you need to comfortably retire varies depending on your age, expected lifespan, marital status, lifestyle, and location. The best way to ensure you have enough saved in your nest egg to retire is by creating a comprehensive plan with a financial advisor that considers your entire financial picture.
What are the main sources of income in retirement?
The main sources of income in retirement are generally 401(k)s, pensions, and other employer-sponsored retirement plans, in addition to traditional and Roth IRAs. Social Security is another main source of retirement income for most older folks, but it is considered supplemental income.
How can I estimate my Social Security benefits?
You can estimate your Social Security benefits using a calculator, inputting your income, birth year, and the age you plan to start receiving benefits. The average monthly Social Security benefit is about $1,770 as of May 2024, with the maximum amount being around $3,822.
What should I consider when planning for healthcare costs in retirement?
When planning for healthcare costs in retirement, you should consider any disability and current medical diagnosis that may require long-term health needs. One of the best ways to save for potential healthcare costs in retirement is with a health savings account (HSA). With an HSA, you can designate funds for health needs separate from your other retirement savings.
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