The Best Time to Retire
For you or somebody you know
In a couple of generations, retirement may not be as present as it is today. We are in the midst of a retirement age boom due to its namesake generation. Life expectancies have increased in the last one hundred years, but the view about retirement age is more flexible. Social security has tricked upward the full retirement age to 67 for those born after 1959 and may need to do so again to fund benefits for a population that expects to grow older.
When to retire is a popular question recently highlighted by in a recent post about a Kansas City family that wants to retire early. As Lindsey writes, “The couple want to retire early, and they loosely follow the FIRE movement. For those unfamiliar, FIRE stands for “Financial Independence, Retire Early.” The KC couple is about 40 and wants to accumulate $2.5 million, then plan to withdraw 4% a year to live on during their retirement, sometime in their early 60s.
Is FIRE worthwhile? There is no re-bar in the concrete. It is just another vacuous rule of thumb. As I wrote in my Notes, “Why $2.5 million? Maybe you need less. Maybe more. If you identify two or three ages at which you would prefer to retire, then you can measure the path that creates your best living standard. If you can find a financial planner who practices economics-based financial planning, they can do it for you.”
Better yet, read today’s installment of Economics-Based Personal Finance.
Today: Chapter 7 is the retirement chapter, and the installment illustrates how to measure the economic impact of retirement. You select the age of your ideal retirement and a few more ages beyond that and, voila, there will be a menu of ages and lifetime living standards from which to choose.
Early retirement may be affordable, yet the economic gains from more work are substantial. More earnings, more investment earnings, and more taxes. On net, working longer produces more wealth. But that isn’t the point. People may value retirement; in economics, we call it leisure, and the value you place on leisure can be measured by your monetary give-up. It can be hundreds of thousands of dollars. Your preference is the only one that matters.
Excerpt:
The complete installment is in today’s PDF.