Are You Ready for Retirement?

According to U.S. Census Bureau data, the average life expectancy for an American at age 65 is an additional 18.8 years for a man and 21.4 years for a woman. Of course, there’s no guarantee you’ll live that long, but in budgeting and saving for retirement, it makes sense to plan for at least an average life span, to reduce the risk of outliving your money.

The longer you wait to start collecting retirement benefits after you become eligible at 62, the higher the amount you will receive. For each month you delay up to age 70 (when you can claim your maximum benefit), your monthly payment goes up. If you can wait until 70, your benefit will be about 77 percent bigger than if you had claimed at 62.

How big a nest egg you need depends on many factors, such as where you live (or plan to live) and the lifestyle you have in mind. Do you intend to keep working to supplement your savings? Do you want to travel more or pursue a hobby that carries costs? There’s nothing wrong with having ambitious plans and setting ambitious goals to fund them, but there’s no magic number.

Retirement income is typically lower than working income, so you don’t want to be carrying a mountain of debt into your later years. But remember that not all debt has the same effect on your finances. Focus first on high-interest debt such as credit cards and personal loans. Lower-interest, fixed-rate debt such as a mortgage may be less onerous. Carefully consider how aggressive repayment might affect your ability to save.

You can continue working and still receive benefits. But if you are younger than your full retirement age (between 66 and 67, depending on your year of birth) and earn more than a certain amount, Social Security will temporarily withhold a portion of your monthly benefits. Once you pass full retirement age, this “earnings test” goes away, and Social Security increases your benefit to make up for the past withholding.