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When can I retire?

Key takeaways

  • The age you retire can make a big difference for your financial outlook.
  • Retiring doesn't just mean a loss of one source of income. It could also mean changes in investment growth potential, expenses, and withdrawals.
  • The financial planning process can help to clarify the potential impact of different retirement dates.

A big question on many working adults' minds is "When can I retire?". For some people, retirement happens for reasons outside their control. Changes at work, family members impacted by illness, personal health challenges, or other circumstances may dictate when they give up their jobs. For those who choose to stop working, the question of when they leave work is important: A few years of working can mean a big difference, both in terms of retirement lifestyle and finances.

The financial planning process can help illustrate what is at stake and identify some of the key questions to ask when considering the timing of your retirement.

To demonstrate, let's look at a hypothetical couple, Bob and Kathy. Bob and Kathy decide to meet with a financial professional from Fidelity to review their options as they begin to discuss when to stop working. Fidelity and other financial companies offer a number of online tools for guidance as well as access to financial professionals. Bob and Kathy have a dedicated Fidelity advisor named Dylan as part of their relationship with the company. The couple would like to retire early enough to travel extensively and keep active, but they don't want to risk sacrificing their lifestyle.

When they meet with Dylan, he explains the basic planning process: First they will discuss Bob and Kathy's goals, then review the couple's current situation, and then Dylan will review the potential financial impact of a few different options.

The goals

Bob and Kathy are 60. Bob would like to retire so he can have more time to devote to the activities he loves, like caring for his grandchildren and volunteering with the historical society. Kathy is looking forward to having more time for the community farm where she is a board member. Bob and Kathy love traveling, dining out, and the theater. They feel a bit nervous that they will have to scale back those parts of their lifestyle if they retire too soon—once things get back to normal.

Bob and Kathy are hoping to retire at 63, but they haven't really looked at what that means for their retirement finances and wonder if it would be worthwhile working a few years longer. Initially, Bob and Kathy wanted a financial plan that would fund retirement until their late 80s, but Dylan suggested planning until 96 due to longevity trends and their own health, so the couple decided to be prepared for a longer retirement.

The checkup

The couple has been saving for a long time and has about $1,000,000 in savings of which roughly 75% is invested in stocks, 15% in bonds, and 10% in short-term investments. They have another $300,000 of equity in the house they own. Their income while working is $250,000 a year, and at age 67 they will each begin to collect $20,000 annually from Social Security. Their annual expenses are about $80,000 per year, which will grow with inflation over time.

The options

Dylan uses a financial planning tool to illustrate the couple's financial outlook if they retire at 63. The illustrations are based on market simulations. The software runs 1,000 different scenarios for the couple's retirement plan, using hypothetical outcomes based on the historic performance of stocks, bonds, and other investments. The goal is to look at lots of different possible outcomes and create a plan that may work even in challenging market conditions, since it is impossible to predict the actual return of the markets.

The illustrations suggest that if the couple does retire at 63, they would have a moderate probability of having their plan succeed; in this case that means in about 80% of the scenarios, the couple would be able to meet their expenses, maintain their current lifestyle, and still have some money left in their portfolio at the end of the plan. In an average market, defined in this case as the 50th percentile of the simulations, they could potentially leave a significant legacy, about $4 million in today's dollars.

On the other hand, some of the scenarios were more challenging. In about 20% of the scenarios, the couple would run short on money in their portfolio and need to make lifestyle changes to make ends meet, for instance selling a home or reducing spending. In a very difficult market scenario, defined in this case as the worst 2.5% of the scenarios, their portfolio would be used up with about $900,000 in expenses remaining during their plan.

For illustration only. IMPORTANT: The projections and other information generated by eMoney Advisor regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time. eMoney Advisor is a diagnostic, web-based tool owned and maintained by eMoney Advisor, LLC, a Fidelity Investments company. See endnotes for important details about how these values were calculated and how median and downside markets were defined.

Bob and Kathy are worried; they don't want to sacrifice their lifestyle and don't feel comfortable with a plan that came up short in roughly 1 in 5 illustrative scenarios. Dylan runs another illustration, and this time the plan assumes they work 2 years longer, to age 65. In this case, working longer allows the couple to continue making contributions to their savings, delay withdrawals, and give their portfolio more time to potentially grow. They also would delay receiving Social Security, thereby increasing their payout.

The illustration suggests that working 2 years longer significantly increases the chances of the plan succeeding. According to the illustration, the revised plan would let them maintain their current lifestyle in over 90% of the scenarios, which feels like a strong plan to Kathy and Bob. Even in a challenging market, their portfolio could cover more of their expenses—the shortfall from their portfolio was reduced by about $500,000.

For illustration only. IMPORTANT: The projections and other information generated by eMoney Advisor regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time. eMoney Advisor is a diagnostic, web-based tool owned and maintained by eMoney Advisor, LLC, a Fidelity Investments company. See endnotes for important details about how these values were calculated and how median and downside markets were defined.

Bob asks if working longer could let them spend more money once they do retire, so Dylan creates one more illustration. Again he models retirement at age 65, but in this scenario he increases the annual spending. The result is that the plan has about the same chance of success as retiring at 63, but the couple can spend an extra $10,000 each year.

Decision time

Bob and Kathy review the numbers with Dylan. They discuss some other options, including part-time work in retirement, different investment approaches, and potential risks to their plan. While Bob and Kathy are eager to start their retirement, they decide that they will be able to enjoy the lifestyle they want with less worry if they wait a little longer. Ultimately confidence in their plan is worth more to them than the increased spending.

Dylan reminds the couple that a lot can change over time, so the 3 decide to meet again each year to update the plan, or more often if there are any big changes in their family or finances.

The bottom line

When can you retire? There is no clear finish line when it comes to saving for retirement, especially during these uncertain times. The financial planning process may be able to help define your goals and illustrate some of the tradeoffs involved. As you make a plan, you can weigh the risks and benefits and make your own decision.

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About the numbers in this story:

The scenario analysis depicted in this story uses Monte Carlo analysis, which is based on a mathematical modeling process that attempts to take into account the changing and uncertain nature of the markets to evaluate the likelihood of certain outcomes under various market conditions and presents a probability of success, i.e., an estimate of the probability that a minimum amount of assets is achieved at the end of the simulated period (investment horizon). Monte Carlo analysis uses estimates of asset class expected rates of return, and expected volatility and correlation, to model an asset allocation (each a simulation). In each simulation, a rate of return is generated for each asset class using the mean and standard deviation of the market index in the randomly chosen year. Up to 1000 trial runs are calculated resulting in a range of values that is further analyzed to produce a statistical probability (i.e., the probability of success) of an investment strategy.

The percentile indicates the rank of the scenarios among the 1,000 simulations. So, 50% of scenarios outperformed the median and 50% underperformed. This article refers to a median market as "average." The downside shows the scenario in the worst 2.5% of scenarios; 97.5% performed better. The probability of success is based on the percentage of market scenarios in which the plan funded the income needs to the planning age. These scenarios assume $100,000 of expenses starting at age 65, adjusted for inflation, from retirement at age 66 to age 96. The starting balance is $1,000,000.

The scenarios modeled assumed that the couple qualified for the residential home sale tax exemption and that the costs of their housing-related expenses would increase at 4% annually throughout the course of the plan.

Fidelity® Wealth Services (FWS) Wealth Management service-level clients and all Fidelity® Strategic Disciplines (FSD) clients must generally qualify for support from a dedicated Fidelity advisor, which is based on a variety of factors (for example, a client with at least $500,000 invested in an eligible Fidelity account(s) would typically qualify). Account investment minimum is $50,000 for Fidelity Wealth Services, $100,000 for Fidelity Strategic Disciplines (FSD) equity strategy, and $350,000 for an FSD bond strategy. Non-discretionary financial planning for Fidelity Strategic Disciplines clients if they qualify for Private Wealth Management.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for investments that focus on a single country or region.

Fidelity advisors are licensed with Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser, and registered with Fidelity Brokerage Services LLC (FBS), a registered broker-dealer. Whether a Fidelity advisor provides advisory services through FPWA for a fee or brokerage services through FBS will depend on the products and services you choose.

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