Retirement planning is a crucial aspect of personal finance, especially for those who are nearing the end of their working years. However, some people may find themselves in a situation where they are earning more than ever at the age of 65, and are not sure how to plan for their retirement. This is the case for a reader who asked an advisor for guidance on Yahoo Finance.
What are the challenges of retiring at 65 or later?
According to the advisor, there are several challenges that people who retire at 65 or later may face, such as:
- Health risks: As people age, their health may deteriorate and they may need more medical care and assistance. This can increase their expenses and reduce their quality of life. Moreover, they may not be able to enjoy their retirement as much as they would have if they retired earlier.
- Market risks: People who retire at 65 or later may have less time to recover from market downturns and volatility. They may also have to withdraw more from their investments to meet their living expenses, which can deplete their savings faster.
- Longevity risks: People who retire at 65 or later may live longer than they expected, and may outlive their savings. This can create financial stress and insecurity in their later years.
- Opportunity costs: People who retire at 65 or later may miss out on some of the benefits and opportunities that come with retiring earlier, such as spending more time with family and friends, pursuing hobbies and passions, traveling, volunteering, or starting a new career.
What are the strategies for retiring at 65 or later?
The advisor suggests some strategies that people who retire at 65 or later can adopt to make their retirement planning more effective and efficient, such as:
- Maximizing retirement savings: People who are earning more than ever at 65 should take advantage of the higher contribution limits and catch-up provisions for retirement accounts, such as 401(k)s, IRAs, and Roth IRAs. They should also consider diversifying their income sources and investing in tax-efficient vehicles, such as municipal bonds, health savings accounts (HSAs), and life insurance policies.
- Reducing debt and expenses: People who are planning to retire at 65 or later should aim to pay off any high-interest debt, such as credit cards, personal loans, or car loans, before they retire. They should also review their spending habits and budget, and cut down on any unnecessary or discretionary expenses, such as eating out, entertainment, or subscriptions.
- Delaying Social Security benefits: People who are eligible for Social Security benefits can choose to delay claiming them until they reach their full retirement age (FRA) or beyond. This can increase their monthly benefit amount by 8% for each year they delay, up to age 70. However, this strategy may not be suitable for everyone, depending on their health, life expectancy, marital status, and other income sources.
- Working part-time or consulting: People who are not ready to fully retire at 65 or later may opt to work part-time or consult in their field of expertise. This can provide them with additional income, social interaction, intellectual stimulation, and a sense of purpose. However, they should be aware of the potential impact of their earnings on their taxes, retirement accounts, and Social Security benefits.
- Seeking professional advice: People who are unsure about how to plan for their retirement at 65 or later may benefit from seeking professional advice from a certified financial planner (CFP) or a retirement specialist. They can help them assess their financial situation, goals, risks, and options, and create a customized retirement plan that suits their needs and preferences.
Retirement planning is not a one-size-fits-all process. It requires careful consideration of various factors and scenarios. People who are earning more than ever at 65 should not delay or neglect their retirement planning. Instead, they should use their income advantage to boost their savings, reduce their debt and expenses, optimize their Social Security benefits, explore alternative work arrangements, and consult an expert if needed.