Timing Your Retirement: A Financial Professional's Guide on When to Say When

A man checks his smartwatch for the time.

People begin to ponder an important question as the dollar amount rises in their retirement account and the calendar tells them they are another year older:

Exactly when should they retire?

Is a particular age the right age? Someone approaching 67 who will be eligible for their full Social Security benefits might decide that's the moment.

Others might opt to retire a decade earlier because they want to be young enough to enjoy those retirement years.

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A person who is still passionate about their career might keep working long past a traditional retirement age because of the sense of purpose the job gives them.

Just how do you decide?

No one answer works for everyone. But there are a few things to consider as you decide whether the timing is right for your retirement.

Choosing a retirement lifestyle

As you approach retirement, ask yourself what kind of lifestyle you expect to lead in your later years. The answer to that question plays a significant role in determining whether you have the resources you will need.

Some people view retirement as an adventure. They intend to travel to exotic locations or splurge on the expensive car they always wanted in their youth.

Others are satisfied with being frugal. They will spend their time grilling hamburgers for family get-togethers, volunteering at church or meeting friends for card games.

Still others may decide it's time to move, heading to a better climate where the cost of living could be less — or more — than what they previously experienced.

No answer is right or wrong, at least in theory. But you do need to make sure your retirement dream is in line with your retirement money.

Adding up your income sources

Where will that retirement money come from?

One source almost certainly will be Social Security. Timing is especially crucial with Social Security, so make sure you know the options and the repercussions of your decisions.

You can claim your Social Security benefit as early as age 62, but that's not always the best choice because you receive reduced monthly payments if you do. The reduction is for life.

Also, you need to be careful if you plan to work in retirement. When you take your benefit early, there are limits on how much you can earn.

If you wait until your full retirement age (currently 67 for most Americans) to claim Social Security, then you receive more money per month and there are no limits on annual earnings from a job.

Also, if you postpone claiming your benefit past your full retirement age, you can increase your monthly benefit even more. For every year you delay claiming after your full retirement age to age 70, your benefit grows by 8%.

Once you reach 70, though, grab that benefit. There are no advantages to postponing after that point.

Beyond Social Security, some people have pensions that will boost their monthly budget, although pensions have been quickly disappearing.

Most retirees also have savings, often through an IRA, a 401(k) plan or other tax-deferred account. These can supplement the Social Security and pension money.

Add up those sources to determine your monthly income in retirement. Then determine if the total will sustain the lifestyle you envisioned. Will you have enough to pay your bills and enjoy the extras you want?

If not, then another timing decision could come into play. Should you consider postponing retirement to save more? If you weren't already planning to, will you delay claiming Social Security so you can maximize your benefit?

Planning for taxes

One other thing to keep in mind as retirement approaches is that income taxes are not going to disappear, so you will want to be as tax-efficient as possible.

A common element with many retirees is that they have a sizable amount of money in tax-deferred accounts. That looks good on the surface, but it also leaves them with a tax bomb in the future.

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Every withdrawal they make from those accounts is added to their taxable income for that year. And once they reach age 73, required minimum distributions (RMDs) take effect.

Those RMDs mandate that retirees withdraw a certain percentage of money from their tax-deferred accounts each year, whether they need the money or not, so the federal government can collect the taxes.

As you can see, a number of factors come into play when you are trying to get the timing right on your retirement.

The sooner you start planning, the better positioned you will be to make the right decision for you. But you don't have to go it alone. A financial professional who works regularly with retirees can help you review everything involved and assist you in avoiding potential trouble.

Working with an experienced pro will increase the odds that the retirement time you choose will be the right time.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.