To me, a real goal needs a deadline or at least a target date. What good is having an objective in life if you don’t at least attempt to define when you will achieve that objective?
Defining the “When to Retire” Goal
To me, there are two primary concepts or components that are typically associated with the “retirement” goal. One component is leaving the workplace. The other is financial independence. These two concepts can be related, in that financial independence means (to me) that you have the freedom to choose whether to work or not.
I suspect that most boomers will place more emphasis one or the other of these two components, depending on how they feel about the work they are doing. If you hate your job or are just tired of working altogether, then you are focused on “leave the workplace” component. If you are relatively content in your job but want to be ready to decide to do something else (or nothing at all), then you are focused on the “financial independence” component. I fall in the latter category.
Setting a Leave the Workplace Deadline
If stopping work is your primary goal, then you are probably looking at: (a) pension eligibility dates; (b) Medicare (or other retiree health care) eligibility dates; and (c) Social Security retirement dates.
Depending on your level of “I hate work” desperation, you may decide that as soon as you are eligible to receive a pension or Social Security retirement benefit, and have health care in place, that’s it – you’re done. The flip side of this attitude is that you will need to adjust your lifestyle to meet your retirement income, whatever that turns out to be.
Most retirees up to now seem to have had this attitude, because so many have chosen to claim Social Security benefits at age 62, even though there are excellent reasons to delay Social Security to age 70.
The advantage to focusing on the “leave the workplace” component of retirement is that you can pick an actual date on the calendar that is real and fixed. That probably won’t work for me.
Setting a Financial Independence Deadline
This is what I am focused on. I want to have the financial resources in place such that I can work as little as I want (or not at all) and still maintain a reasonable lifestyle. Thus, setting a target date for this kind of retirement can be more difficult and more speculative.
First, you need to assess what your income needs will be in retirement. That is challenge in itself and will be the subject of another post at another time. If you are so fortunate that your pension and/or Social Security benefits can provide 100% of your retirement income needs, then the target date is relatively easy to set.
If you are like me, then you will be counting on investments and other assets to provide at least some of your retirement income. In 2007, I had a retirement income goal. Using different tools to analyze our retirement portfolio and studying my Social Security statement, I was able to set a target age for our financial independence. Then 2008 happened. Now my target date or my retirement income goal probably needs to change.
Final Thoughts on Deciding When to Retire
For those who have seen their retirement target date pushed back because of investment losses, there is a third factor to consider. This factor is adding an extra income component to the equation, e.g., an alternative income stream. That is something I am working on now, with this blog being one example. If I can replace income lost from a diminished retirement nest egg with other income that is passive or semi-passive, then that target date will move back up to where it was before 2008.
For example, assume that you suffered a loss in 2008 of $400,000 in retirement assets, from which you were counting on receiving $!6,000 in yearly retirement income. The long way back to your goal of financial independence is to re-gain that $400,000 loss. The shorter way back may be to find another passive income source to replace the $16,000. That’s what I am trying to do.
Have you decided when to retire? How did you do it?