When Can I Retire? Questions to ask before turning in your notice

Ready to give up the workday grind? Or at least dream about when you’ll be able to make it a reality? 

If you’re looking to set a retirement date, the first thing you have to do is determine when you’ll have the financial resources to make it happen. After all, people retire for many reasons — health, wanderlust, boredom with their job — but they will have a better life if they don’t have to worry each month about paying their bills. 

The traditional retirement age is 65, but there isn’t a definitive answer on when you can retire. This article will cover what you need to consider to make the best choice for you, whether you want to opt for a conventional path or retire early. Here’s what you need to know before you march over to your boss’s desk.

To know how much money you’ll need in retirement, start by tallying your current expenses. Add up fixed expenses like a mortgage and cell phone bill, and budget for variable but predictable expenses like groceries and your electric bill. Then ask yourself, how many of your regular expenses will continue into retirement? Some will likely go away — for example, you won’t have to commute to work (unless you take on a new job) or contribute to your retirement plan. 

Then, add in any expenses you expect to take on. For example, if you want to travel, spend money on a hobby, or join local clubs, you want to add those costs into your retirement budget. A big part of retirement planning is figuring out what you will do with your time when it is no longer claimed by your boss — and having enough money to live a full life is important.

If you’re retiring early, before you’re eligible for Medicare, make sure you can cover the cost of health insurance. You may be able to continue on your employer’s health plan or purchase coverage through the Health Insurance Marketplace. Because health care costs generally increase in retirement, you want to take advantage of preventive care when you’re still relatively healthy. If your early retirement is driven by health care issues, you must have coverage in place.

Here’s the bad news: If you can’t cover your current expenses with retirement income and other savings, then you probably can’t afford to retire yet. However, you may be able to start adjusting your cost of living while still working. For example, if you can downsize to a less expensive home, you can save money on your fixed expenses. Paying off debt will also free up more money in retirement. 

Then place the money you’re able to save into a high-yield savings account, which is an almost entirely risk-free way to grow your coffers as you approach retirement. Right now, the highest interest rates can be found at the best online banks, which are offering APYs upwards of 5%. It’s easy to shop around online and find an account that will work harder for you.

Most Americans are covered by Social Security. Benefits are available beginning at age 62, although the amount you receive each month will increase the longer you wait. Because Social Security is so important to most people, you’ll want to get an estimate of your Social Security benefits on the agency’s website. The estimate will include information about your monthly benefit at different retirement ages. 

Important note: When you turn 70, you must take any Social Security benefits that you’re eligible for. If you aren’t ready to retire then, you can put the money into savings for when you do take the leap. (This is another situation where seeking out a high-yield savings account to store the money will benefit you.)

The IRS allows one exception to the 59 ½ retirement age requirement. If you are not working, you can take your retirement distribution through something called substantially equal periodic payments (SEPP). The rules on these plans are strict, so get advice from an expert before you go this route to make sure you set up the equal payments series correctly. Otherwise, you’ll pay a penalty that will eat into your retirement income.

Financial researchers have expended a lot of time and energy trying to determine how much money people can take from their retirement accounts to live well without running out of money, and there’s still no good answer. 

There are so many variables, like how long you’ll live, what the inflation rate will be, and how financial markets will perform. Many, like me right now, simply throw up their hands and say to start by taking 4% of your current balance, then increase that amount each year by the rate of inflation. This is the so-called 4% rule that has some theoretical basis, but it’s also subject to extensive debate. 

While the 4% rule is a simplification that doesn’t work for many folks, it’s a good starting point when you’re determining when you can retire. If your estimated Social Security benefits plus 4% of your retirement savings is enough money to cover your bills, you’re ready to start a more intentional planning process.

If you’re covered through a government pension or defined benefit pension plan, check with your employer to find out when you can begin taking benefits and to get an estimate of the payment size. Find out if your pension includes reduced rates for supplemental health care, as that can be a huge financial help in retirement. The rest of the tips outlined above apply: You’ll want to add up your expenses and consider what other sources of income you’ll have. 

Not everyone wants to, or can afford to, quit working entirely. Working part-time can also be a great way to transition into retirement while helping you save more money. Many employers allow workers to reduce their schedule or consult on projects as they move toward retirement.  

You might want to retire and then take on a part-time job, look for temporary or seasonal work, or find a side hustle to help keep you engaged while generating an income. 

When you can retire depends on your individual circumstances. While a key consideration is whether you can cover your expenses, the ultimate decision is highly personal. The good news is that you can always change your mind if you don’t like how things are playing out: It’s not unusual for people to retire early and then go back to work — and not just because they need the money. But with some thoughtful planning, you’ll be able to live comfortably in retirement and enjoy your well-earned rest.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at [email protected].