Deciding when to retire will be the single most important decision you will make when it comes to planning for retirement. With this question comes a myriad of options and choices you have that could ultimately determine if your retirement will be a success - or not. In this episode of Money Script Monday, Sean goes over the five steps you need to consider when deciding the optimal time to retire.

Click on the whiteboard image above to open a high-resolution version of it!

Video transcription

Hello, and welcome to another edition of "Money Script Monday." My name is Sean Brady, and today's topic is, when should I retire?

Deciding when to retire may not be as simple as it used to be. Retirees could face a volatile economy and we're certainly living longer than generations before us.

And that's why today, I'm going to help you understand some of the opportunities as well as challenges we may face in retirement, so you could take them into account when you're determining your retirement age.

Step 1: Income Analysis

Now, first steps are to start by assessing where you are today as well as addressing any concerns you may face tomorrow. That brings me to step number one, income analysis.

The very first step in determining your retirement age is estimating how much income you will need, as well as how much income you will have in retirement?

For many people, Social Security income is going to be a main source of retirement income.

And that's why it's really important to understand when Social Security is going to be available to you, as well as being able to estimate how much income you'll receive. And that way you can make an informed decision on when to start those benefits.

Social Security starts as early as age 62. But keep in mind if you retire at 62 and you start those benefits at age 62, you'll likely receive at least 20% less income annually than if you were to wait at your full retirement age (FRA) to start those benefits.

Also, consider postponing past your full retirement age. You'd receive 8% more income annually, each year, up until age 70, which is the max Social Security benefit age.

If you still have an income gap, it's important to consider other sources of income to cover that income gap and that's where maybe an annuity might be a good product for you.

You could also consider delaying your retirement age, and that would involve changing the strategy altogether.

Step 2: Health Care Costs

Step number two, healthcare costs. Healthcare costs can be a really big expense in your retirement, and that's because if you decide to retire before age 65, you may have to pay for your own health insurance.

Some employers will cover medical insurance for you if you decide to terminate employment with them prior to age 65, but it's typically only for about 18 months and the premiums might be higher than what they were when you were employed.

You should also consider that the federal government's Medicare program may be available to you at age 65, but it doesn't cover all healthcare costs. Plus, there's monthly premiums that go to part B coverage as well as deductibles for any hospitalization.

Step 3: Other Employee-Sponsored Benefits

Step number three, other employee-sponsored benefits.

If you retire and this is at any age, you may be giving up some really unique employee-sponsored benefits. For instance, employee-sponsored life insurance, employer contributions to HSAs, or health savings accounts, disability insurance, vision, dental, etc.

Before you decide to retire, it's important for you to look into those benefits and see if they continue into your retirement. And that way you could determine at what cost they are to you.

Now, if they aren't going to continue into your retirement those benefits, then you should really add those into your overall income analysis as a potential expense.

Step 4: Phased Retirement

Number four, phased retirements.

With a phased retirement, many people like to ease into their retirement, whether it's with their current employer or maybe a part-time job elsewhere.

It's then important that the wages you receive from a part-time job or a phased retirement really are able to sustain your current living standards or current living expenses.

And that way, you're not really relying upon that savings that you've designated as your retirement income.

It's also important to consider how long do you expect to work into your retirement? And you based this off of maybe personal health reasons or maybe health challenges you're facing with loved ones. Because it's entirely possible that you may be forced into an early retirement due to health or caregiver reasons.

Step 5: Personal Readiness to Retire

Finally, step number five, personal readiness to retire.

Many people forget to ask themselves one final question when they're deciding when to retire. And that's how will you spend your time in retirement?

Although an early retirement may sound really nice because it gives you time to travel, pursue hobbies, hang out with family, a lot of early retirees find that they have a lot of excess time on their hands.

Whether you decide to have an early retirement or retire at a normal age, it's really important for you to stop and think and understand what you're going to do in your retirement.

That's why you should also consider potentially volunteering and maybe some part-time work if personal fulfillment is an issue for you.

Next Steps

And lastly, that brings me to the next steps. It's really important for you to address both your financial as well as personal concerns and goals when you're developing your retirement strategy.

You should meet with a financial professional so they can help determine the right retirement income needs for you. And that way you can make an informed decision on your retirement age.

Thank you for watching. We'll see you next time on "Money Script Monday."