How To Decide When To Retire

Retiring is one of your biggest career decisions. Timing it right requires financial calculations and emotional insights.

by NEA Member Benefits

Key takeaways

  • Calculate your potential income and expenses to see if you can afford to retire.
  • Understand how your retirement age affects your pension and Social Security benefits.
  • Plan on health care costs being one of your largest expenses in retirement.
  • Make sure you are emotionally ready to walk away from your career in education.

At some point, the school bell will ring for the last time and you will move into the next phase of your life—retirement. But when? Do you dismiss yourself early and have up to 30 years or more to build a different life? Or do you continue doing what you love for as long as possible?

Deciding to retire is not something you do on a whim. It takes careful planning to pin down your ideal retirement age. There are complex issues to weigh, including pension and health benefits, income and expenses, longevity expectations and the emotional effects of walking away from serving the educational community.

It’s a very personal decision. But there are some concrete considerations that can help you determine your ideal retirement age.

Can you afford to retire?

Many Americans delay retirement past the “normal” age because they answer that question with a definite “no.” The savings and expected benefits just aren’t there to fund their dream retirement. The earlier you retire the fewer years you have to collect a paycheck and the more years you’ll have to support yourself without that paycheck. Plus, you have fewer years to supplement your pension by saving through tax-deferred workplace retirement plans.

Determining your financial ability to retire takes some math skills. Fortunately, the NEA Retirement Income Calculator can help you crunch the numbers.

Estimate your retirement income from all sources and then estimate your expenses. Calculate how much you’ll need to withdraw from savings to help make ends meet. Remember, your retirement income may have to last decades. Assume that health care expenses will rise the older you get. Inflation constantly erodes the value of your fixed income dollars so factor in the historical annual inflation rate of about 3%. The calculator allows you to input various assumptions and get a read on any income gaps you may be facing at different retirement ages. It even takes into account your state pension benefits.

Know your pension and Social Security benefits

Your state pension benefit is based on a formula that includes your age, service credits, and final compensation. Changing your retirement age by just a year or two might make a difference in your pension benefit. If you retire early, your benefit will be lower because it’s expected that you’ll receive benefits for more years. And once you retire and lock in your benefit, that’s your monthly payment for life.

If you qualify for Social Security, the age you apply for benefits also affects how much you’ll get. Waiting until full retirement age (currently between age 66-67, depending on your birth year) may increase your monthly Social Security benefit.

Plan for increasing health care costs

Health care may be one of your largest retirement expenses. According to the latest estimates from Fidelity Benefits Consulting, a 65-year-old couple retiring in 2018 may need about $280,000 saved (after tax) to cover health care expenses in retirement. The actual amount you’ll need will depend on when and where you retire, your health and how long you live, among other factors.

Since Medicare doesn’t kick in until age 65, if you retire earlier you’ll have to cover your medical expenses with private health insurance. Some school districts offer retiree health care to bridge the gap before Medicare eligibility, but the portion of premiums you have to pay depends on various eligibility provisions, such as years of service in the same district. Check with your district to see if you will qualify for retiree health care benefits at your preferred retirement age.

Consider the emotional effects of retiring

Even if they can afford to retire, many educators continue working beyond the “typical” retirement age simply because they love what they do. Look inward and be honest with your feelings to make sure you are emotionally ready to walk away from your passion. Figure out what you’re going to do to keep yourself challenged and engaged after you say goodbye to your career. If you’re at all uncertain, and you have the job flexibility, consider delaying retirement until you’re emotionally (and financially) ready.

Find your retirement sweet spot

In general, delaying retirement—even by just a few years—may improve your retirement finances. Your pension may be higher and the added paychecks and tax-deferred retirement plan contributions can continue to build up your savings balance. But the final decision is not just a financial one. Do your homework, run the numbers, get in touch with your emotions and you’ll find your ideal retirement date.

Retirement planning solutions for NEA members