What Is the Best Age to Retire?

Travis McShane, CFP®, CFA

According to a recent Gallup poll, the average working American expects to retire at age 66. This age is typically associated with full retirement age (FRA) for Social Security benefits, although for most people currently working, the full retirement age is inching closer to 67 years old. As a reminder, most people can claim Social Security as early as age 62—at a reduced amount—or delay claiming benefits until age 70 for a larger monthly amount.

In answering the question of when to retire, you should also ask yourself the following companion questions:

  • How long do you think you’re going to live?

  • What sort of standard of living do you want in retirement?

How Long Will You Live?

For American adults who reach 65 years of age, the average life expectancy is 83.2 years for men and 85.7 for women, according to statistics from the Social Security Administration. To keep things simple, let’s average the two, so Americans who have reached 65 years old can expect to live until about 84.4 years old.

Using the statistics from above, the average American will need to plan for 18.4 years of retirement expenses. Keep in mind that an average is just the midpoint, and some of you will live much longer.

Now that we’ve established the average, let’s take a look at a few factors that you can use to adjust your expectations up or down:

  • Does your family have a history of longevity?

  • Do you maintain a relatively healthy lifestyle? (Diet and Exercise)

  • Do you have access to quality medical care and health insurance? (Regular Checkups)

  • Do you maintain social involvement with friends, family, and community?

This list is by no means extensive, but if you answered in the affirmative to most of these questions, then it is likely that you’ll live longer than the average American.

Growing up in Orange County, California, I’d say most people around here would fall into the range of middle class to upper middle class. While housing is expensive and tax rates are high, I’d expect most households to at least have access to the positive adjusting factors I listed above.

Take a moment and think through what a reasonable expectation for longevity might look like for you (don’t take too long, though—it might affect your mood).

Now that we have looked at expected longevity, let’s switch our focus to the expected standard of living during retirement.

What Will Your Standard of Living Be?

Most people have difficulty forecasting what their life is going to look like even a couple of years into the future. There are so many variables, between family circumstances, career circumstances, housing decisions, economic ups and downs, political movements, health care costs, etc., that it may seem overwhelming to put even an outline together.

When our advisory firm begins retirement planning with folks, we outline a few basic scenarios to try to provide context around the decision of when to retire. The first scenario we typically present is determining how much money needs to be saved before retiring to generate the equivalent income that the client is currently receiving from employment. 

To do this, we need to make several assumptions including:

  • When does retirement begin?

  • How long does the money need to last?

  • How much are you saving each year?

  • What is the current amount of retirement savings?

  • What will inflation average over the course of your retirement years?

  • What’s a reasonable expectation for how much your retirement savings can earn?

  • What are your other sources of income during retirement? (Social Security, pensions, rental income, etc.)

  • At what rate do these other sources of income grow year to year?

We always caution people to stay conservative with the assumptions used. For example, if you assume that your investments will go on earning 15% per year on average during retirement, then you won’t need to save as much before retirement compared with a more reasonable growth rate that will require you to have more in savings as you enter retirement.

After we run these numbers, we have a baseline idea of the approximate gross income you can expect to be able to spend each year during retirement. You would then be able to compare what you are making now from employment against what you can expect your retirement income to be and assess the situation.

For example, if you are making $100,000 per year and the results of your retirement projection show you can spend $80,000 per year, you have a $20,000 shortfall between your current and future income. You are left with a decision to make on how to close that gap.

On the flip side, if you are making $80,000 per year and your projection shows you can spend $100,000 per year, it might mean that you can retire early.

After you have a baseline number with which to work, the next question is: What inputs can you adjust?

You could:

  • Delay retirement/work longer

  • Work part time during retirement

  • Increase annual savings toward your 401(k) plan/retirement plan/nest egg

  • Reduce expenses/costs of living

  • Change the asset allocation of your investments

Below is a nice chart by JP Morgan Asset Management that shows the factors in the retirement equation and the amount of control we have over them:


The Personal Component

We have been primarily focused on the personal finance aspects of retirement planning in this article. It is important to remember that retirement is multifaceted, and we see clients that are very well prepared financially not spend enough time considering the more emotionally related topics.

The personal side of the equation must be considered as well. Do you have a plan for how you will spend your time? Do you have plans for developing and maintaining relationships and social connections? Do you have hobbies that you enjoy doing or classes that you would like to take?

Be sure to spend time developing plans for the nonfinancial aspects of life. Be sure that you are ready to retire on both a financial level and emotional level before hanging it up. If you need some help planning for or navigating the transition to retirement, we’d be glad to help guide you through the process, with the ultimate goal of developing peace of mind that you are at financially prepared for retirement.

Schedule a 15-minute discovery call with a fee-only financial advisor to discuss your personal situation.

Travis McShane, CFP®, CFA