I get this question fairly often: "When are you going to retire?" Perhaps because I am almost 65 and mentioned that I'm receiving solicitations from Medicare insurance providers in the mail; or, maybe because I'm starting to look my age, I hear it more often than I used to.
I usually say that I'm not sure and that I'm taking it year by year.
The truth is I enjoy working. I like my job and the people I work with. I like the company I work for. I also don't want to start receiving early Social Security benefits or spending from my retirement savings too soon. I like my employer group healthcare plan and other benefits I receive.
For all those reasons and others, I'm not in a big hurry to retire. But I have started thinking about how to go about making that decision, and I thought I'd share that with you. If you are getting close to "pulling the trigger," this may help you with your decision process.
Deciding when to retire is one of the most important life decisions any of us will make. I don't have a firm, detailed plan for when I will retire and how I will spend my time in retirement. Sure, there are some important milestones that I track, such as Medicare eligibility (age 65) and my full retirement age (FRA) for Social Security (age 66). I also keep an eye on my retirement accounts to make sure I am comfortable with my asset allocation as I get closer to retirement. I also adjust my asset allocations at least once a year.
But as I have thought more about this, I believe that it is important to have a plan. Not necessarily a detailed step-by-step plan, but at least an answer to some fundamental questions. Here is what I think they are for me:
1. What is God's Will?
When it comes to a major life decision like retirement, I want to know God's will. I can't just assume that because I want to do something, it's what God wants me to do.
God is pretty "quiet" in the Bible when it comes to the subject of retirement, so there are no hard, fast rules to follow. But God hasn't been silent about work. Work is part of God's created order, and it's His will for us to work. I also know that God wants us to rest from working as well; He rested on the seventh day after He completed the work of creation. Retirement seems to be consistent with the cycle of work and rest that we see in Scripture. How much we work versus rest in retirement will, ultimately, be a personal decision.
Because it is something that the Bible doesn't say a lot about (retirement is a fairly recent cultural phenomenon), I think I have the freedom to retire if I'm able, to keep working another five or ten years if I want to, or even until I die. But, as a Christian, I'm not totally"free" to do whatever I want – I want to know God's will in this (Rom. 12:2).
When God calls me away from my full-time job, I need to know what he is calling me to. For me, that will probably mean spending more time serving my church and other ministries, posting a little more often on this blog, doing more stewardship coaching, and more time doing the things I enjoy.
2. Do I want to leave my job?
Financial considerations aside, do I want to leave my current job? I know a lot of people can't wait to hang it up, but as I said earlier, I enjoy working and derive lots of benefits from doing so, both tangible and intangible. (I hope my employer and the people I work with would say that the feeling is mutual.)
I suppose if I found my job overly difficult, tedious, or monotonous, I'd be anxious to retire. But I'm fortunate that I don't have a job that saps the "life out of me" – that's one of the reasons I'm still working.
Working is good for us. God created us to work; to be productive and to contribute in ways that benefit ourselves and our families and also helps others, even in retirement. Although real joy and satisfaction can only be found in Christ, work is rewarding and one of the ways we can get some fulfillment in this life, not to mention the essential aspect of earning a living (Ecclesiastes 3:13).
I think of retirement as a more flexible time but not one completely devoid of work. I believe that it's more about continuous learning and maybe even "retreading," as well as ongoing engagement in the things that are important to God and also to me.
This blog is one of them. I started this blog because I want to help and encourage people. I am not a financial professional, but for the last ten years or so, I have been self-educating myself on all areas of personal finance and planning for retirement. More importantly, I have tried to put what I've learned into practice, so when I write about something, it isn't just an academic exercise. No matter what I do in retirement, I want to do it well (Col. 3:23).
"Retreading" means that as we get older, we continue to work but we do it differently. I think God recognizes that we make different contributions in various stages of life; I believe he planned it that way (Job 12:12). As we age, we bring more wisdom and experience to the table, which allows us to contribute in meaningful ways.
Further Reading: What Will You Do When You Retire?
3. What will it cost my wife and I to live in retirement?
To adequately prepare for the financial side of things, I have to know what it's going to cost us to live each month (Luke 14:28). That number will dictate how much I will need to take from savings and combine with Social Security to pay the bills. I also need to plan for other things beyond our normal day-to-day expenses, such as giving, maybe some extra travel, hobbies, etc.
I have already taken steps to reduce or eliminate some major expenses. Our house mortgage has been paid off for many years, but I do have a home equity line that I used to purchase a rental property. I have no other debts. Both of my adult children are through with college, so I don't have any of those expenses either.
I have started working on this by simply taking my current budget, which I have in spreadsheet form and also in Quicken, and estimating what it would look like when I retire. (By the way, I am finding that it probably won't look all that different; more on that in a future article.) I also have transactional data in Quicken all the way back to 2002 – 15 years worth! – so I can easily look at actual expenses in almost any category or specific payee.
4. Have I saved enough to retire?
This question is directly related to question no. 3 above. It's easy to become overly obsessed with "your number," and brokers and advisors are all too happy to address your uncertainty by offering you all kinds of sophisticated analysis, investment plans, and portfolio management services. Frankly, this is an area where professional advice and assistance can be very helpful but choose your advisor wisely.
The easiest approach to this is to assume that I need between 20-30 times the difference between Social Security and my annual expenses. So, I just took my estimated monthly cost of living (from #1 above) minus Social Security, multiplied it times 12 to get an annual number, and then by 25 to give me a rough estimate of how much I should have saved. (I like the 25x multiplier because it reflects the "standard withdrawal rate" of 4%.)
Obviously, the lower your living expenses, or the greater your guaranteed income from sources like Social Security or a pension, the less you will need to rely on savings. That may mean that your multiplier could be 20 or as low as 15. (Some retirement experts say that you need even less. Assuming that you can live on 70 to 80 percent of your annual salary – and many of us could – Fidelity Investments says that ten times your annual salary at age 67 should be enough.)
When I do an estimate, I find that I am on-target with my savings. So, I am fairly conservatively invested at this point.
5. How will I convert my savings into income in retirement?
I think this is one of the more challenging questions. I have a rough idea of what my expenses will be, what my wife and I will receive from Social Security, and how much I need to withdraw from savings to meet expenses. So, the next thing is to decide how I am going to withdraw it over the years.
I've already mentioned the "standard withdrawal rate" of 4%, and I think that is a pretty good guideline. There are lots of other options: fixed or variable withdrawals, annuitization (i.e., turn it over to an insurance company), etc.
I think I will plan to stick with the 4% "rule," at least initially. But I still have to decide how to withdraw the 4%. If I can generate 4% in interest and dividend income, then I can preserve capital and just live off that. That can be very hard to do without taking excessive amounts of risk. (Things like long term or lower quality bonds pay a lot more interest, but they also carry much more risk.) I also need to look out for the insidious threat of inflation (look for an article on that in the near future).
I have previously written about the "4 percent rule." Although 4 percent is a good place to start and I think I will need to be flexible and prepared to reduce that percentage if circumstances warrant.
6. What to do about Medicare?
If I had decided to retire before age 65, I would be in a quandary about what to about health care. Because I am not one of the fortunate few who could receive retiree health benefits (that's mostly for government employees), I would have been on my own. I checked into an ACA "Silver" Healthcare Plan a few years ago (just in case) and found it cost prohibitive. Obamacare simply isn't available at a reasonable price unless you're eligible for a subsidy, especially if you're in your late 50s or early-60s!
I could have gotten by on COBRA for 18 months and then convert to an individual policy, but that was cost prohibitive as well. My solution before Medicare eligibility was simply to keep working and stay on an employer-sponsored group health plan. I'm glad I did.
Now that my wife and I both turn 65 this year, we'll both be eligible for Medicare. That means I don't have to stay with my employer health plan (although I can if I wish, as long as I remain employed), so it is one of those major milestones I was talking about earlier. Because I have no plans to retire this year, I will remain enrolled in my employer plan while also enrolled at no charge in Medicare Part A. I will muddle through the Primary/Secondary payer situation that presents, but that comes with the territory.
Once I do retire, I will need to make decisions about Medicare Parts B, C, and D; plus, a Medicare Supplement Plan. These are some of the most important decisions any retiree makes since healthcare costs will be a big part of every retiree's budget.
Further reading: Medicare Health Insurance Options
7. What will I do all day?
This question is probably the one my wife most wants me to answer. I know my days will look a little different than they do today. I 'm looking forward to greater flexibility with my time in retirement, but I don't envision spending all my time hiking and fishing, which are things I enjoy.
If you have read much of this blog, you know that I don't believe in "retirement" in the more popular sense of the word. I don't think God created us to live out our lives "on vacation." So, I think part of my day will be spent "working" in one form or another. I want to stay busy experiencing and contributing to the life around me but not mainly aiming for a full-time lifestyle of leisure and recreation. I think that can take a lot of different forms; I've already shared some of the things I hope to do (or do more), but I also think I need to remain flexible. None of us know exactly what God has in store for us.
8. Do I need a "Plan B?"
Early retirees typically need a backup plan, but since I'm not retiring early, having a backup plan may be less important. However, I could find that certain expenses are more than planned, or inflation is higher, or Social Security is cut. If any of those things happen, I will need to make adjustments.
I could also go back to work if necessary, but it may be difficult to re-enter my current field (IT) since it changes so fast. It is more likely that we will adjust our lifestyle and/or alter our savings withdrawal strategy.
In general, dealing with economic stress means either increasing income or reducing expenses, or both. I know I will need to stay flexible.
Change is hard
So, I am going to try to answer these questions as best I can. Once I do, I'll know have a good sense of what God wants me to do and when, and whether I can do it.
Even if I answer all of these questions, I don't think it will be easy – major life change never is. The decision about when to retire isn't just about the analytics around the financials; it has spiritual, emotional, and physical dimensions as well. I think one scripture that can help guide us is in this as with so many other areas of life is Matthew 6:33:
But seek first the kingdom of God and His righteousness, and all these things will be added to you. (ESV)
Retirement is just another season in life; one filled with both challenges and opportunities. So, as in any stage of life, we can never go wrong if we put God's kingdom first when making the important decision about when to retire and how we will spend our time once we do.