Retire Early or Retire Late?

MSN Money brings up a good question regarding when to retire:

Which is really better? A smaller Social Security check starting at age 62 that you are still young enough to enjoy for years? Or a much larger Social Security check beginning at 70 that you get for a much shorter period and then just gets signed over to the nursing home or assisted-living facility where you wind up?

It's an interesting question, with no real "best" answer. But MSN Money attempts to offer us a solution. Their take:

Many people can stop saving for retirement at age 60. Instead, they can start using the money that would be going for retirement contributions to travel, spend time with the grandkids and enjoy their hobbies and anything else they were planning to do in retirement.

The only catch: They can't quit work.

The key to this "practice retirement" is putting off the day you tap into Social Security and your savings, so that both can grow. The result is more money, both in your 60s and beyond.

There are two factors at work here that make this a viable idea:

1. The last few years of your retirement contributions aren't that much in comparison to the growth of the investments you've already accumulated. So as long as you leave your investments alone and don't withdraw from them, you're still making great gains. For example, if you've saved $500k and you earn 8% on it, that's $40,000 gained in a year. The $5,000 in extra contribution you would have made is only a fraction of that.

2. By delaying retirement, you will get a larger amount from Social Security when you do take it.

The details are given in a T. Rowe Price study. You can check it out if you'd like more information.

The plan, of course, is not for everyone. If you haven't saved much up to this point, there's no way you can do this. MSN Money provides a rule-of-thumb for who can and can't participate:

If you've saved an amount somewhere around five times your annual income by the time you're 60, this approach should work, said Christine Fahlund, T. Rowe Price's senior financial planner.

"It won't work if you've only saved two times your annual income," Fahlund said. "The sweet spot is somewhere between four and eight times your income."

MSN Money also notes that you don't even have to keep the same job. Any job that covers your expenses and includes health insurance will do.

IMO this is not a bad idea, but doesn't this "new plan" sound a lot like a version of early semi-retirement?

Comments

[I Am 1 Percent]

This all depends on your cost of living and living within means. If you don't enjoy your job, I'd much rather retire early at the expense of a smaller SS check and live within the income. However, if I didn't mind work or loved what I did, I would wait until I was 70.

[Carol]

I will retire between 65 and 66. There isn't much of a difference. I like my work, but I've been at it a long time and I have other interests that I wish to explore. Not everything is about money.