I was recently speaking to a coworker about my plans to retire at 55. Shockingly the coworker did not believe this was doable. He actually wanted to bet me I could not do so. It was a very weird experience as opposed to when I post online where many of the FIRE community want to retire in their late 30s and 40s. Here I thought I was a late outlier compared to what is doable as a 36 year old contemplating working for 19 more years. Yet to the mainstream retiring at 55 is still somewhat unobtainable. Anyway, the last thing he asked got me thinking: “Why 55?”. How did I choose my retirement date?
Choosing a lower bounds of my Retirement Date, the Retirement Number
I have stated before that we are not at the moment financially independent enough to retire. At a bare minimum our retirement date should be after this point. This point is often referred to as someones retirement number. We’ve spoken before about using various calculators to determine this point, but in essence it’s where your assets will support you passively for the rest of your life. There are of course some exceptions where you can set your retirement date earlier. For example if you pick up a side hustle or other sort of income in addition to passive income from your assets then you may be able to reduce your number. Either way, you should not even consider retirement if you do not have a flexible enough plan afterward to carry you through. My lower bounds for my retirement date is after I will achieve my retirement number.
Having Enough Will Not Define My Retirement Date
The thing is, as I have stated before I enjoy my job and do not plan to retire when I reach my number. In fact, the only scenario where it would take me until 55 to reach my target number would involve the stock market returning exactly 0 over then next 20 years. If that happens there will be a lot of early retirees and even regular retirees going back to work. Honestly, this risk is so low it does not keep me up at night. Even if it did I would most likely make my target number on my 55th birthday just based on our savings rate. But that is not why my target retirement date is 55.
Always have Something to Retire to
There is a very famous saying, “always have something to retire to”. Many people retire and have no idea what they want to do with themselves. As scary as it sounds, it is not uncommon for people to retire and then die a few years later. Some, but not all of this, is because they just stopped living when they retired. This is one of my fears for some in the FIRE community. Retirement should not be the goal. What you plan on doing while retired should be the goal. Retirement does not change who you are or what you enjoy, so if you have not discovered those things as of yet you should before your retirement date.
Retiring to World Travel
I do not want retirement for retirement sake for me or my wife. In fact we want to travel the world and live various places to experience what life is like being a local. The thing is, at the moment I have young kids. My kids have this thing called school. Your choices for school are stay in a school district during the year or home school. Home Schooling, especially when young, sounds to me like some sort of torture. So I do not want to retire until my kids are out of the house so I do not need to worry about such things. 55 will mean my youngest is a Junior in College. So that gives you an idea of my lower bound being right around 55.
Of course, if work ticked me off enough or some other drastic change occurred, by meeting my number I could always pull the plug early. I maintain that option regardless, so I am not slowing down savings to reflect 55. However for now I enjoy going to work more than anything I would retire too.
Choosing an upper bounds of my Retirement Date, Mobility and Flexibility
I suspect that bit answers the FIRE community’s questions of why so late. But what about the mainstream question of why so early? I do enjoy work, and that likely will still be true even at 55. The thing is I also like exploring, hiking, camping, and other things that I limit today to 4 weeks a year. I know that after 65 or so the likelihood of my health declining drastically increases. I want to do these activities before I am too old to do them. 55 gives me 30 years to enjoy those things if I live out my life expectancy. It also increases the likelihood that some of those years will be still capable of hiking 5-10 miles a day exploring my surroundings.
Health is always something close to my mind as my father had Cancer by 63 and now walks with a cane. My mother’s father was dead by 41 due to heart problems. You only live for so long and I do not want to wait too long. In fact even though I plan to not retire until I am 55, I fully expect to take more than one 2 month cross country vacation with my family before 55. I might be able to do this with vacation time, but I certainly can do it with a sabbatical. My travel plans are thus not entirely on hold until 55. You never know.
Tax Flexibility and my Retirement Date
I would be lying though if I told you retiring at a young 55 was only due to health. The second reason I chose 55 is financial flexibility. As noted previously I favor tax advantaged accounts for investments. The biggest advantage of these accounts is choosing when and how to take the tax hit. Timing that tax hit correctly can result in being in a lower tax bracket, thus resulting in a lower tax rate.
Once you hit 70 that flexibility goes away because you are required to withdrawal set amounts from 401k like investments in equal amounts called Required Minimum Distribution (RMD). However, if you start early enough you can spread pretax money over longer periods, thus limboing under any tax limits. By setting my retirement date to 55 I have added 15 years to the time period where I can remove from my 401k with minimal other income. This means I will likely pay less tax on these holdings as I use the funds, thus maximizing my assets. I will be writing an article in a few weeks outlining how I plan to take advantage of this period.
All Options are Still Open
So that is really how I have come up with the 55 target. If the world collapses and the market has a negative return over then next 20 years I might need to make that later. If my job ticks me off and the market behaves as normal I might pull the plug earlier and figure out other things. That is the great part about having options, I can always change my mind on my retirement date.
Have you set a retirement date? How did you set it? Why?
I have flirted with the idea of 55 for the same reason. Is there a target # in your tax advantaged accounts you would want to be under so that the RMDs force you to take more out than you want to ? Without doing serious math, I would think you would have to be over 4 million for RMDs to really force you. Would be a nice problem to have, but I don’t think I will need to worry about that.
I haven’t really given much thought to a top. As you’ll see when I talk about my retirement withdrawal strategy in a few weeks I’m not necessarily shooting for a 0 percent tax bracket, just down a bracket or 2 from normal. That gives me more leeway.
My date right now looks like age 56 (34 months away). It is at this point that I believe I will have enough saved up till age 97 for me and Mrs. 39 months, even without social security (the US retirement fund). That is what is driving my date (like you said above).
I also have a lot of other reasons for that “early” date (or late for you real FIRE folks). Just like you state above, I want to be reasonably healthy to enjoy some of my independence, to travel and see things, try out new skills and new abilities. I will probably do some paid work in some manner (to keep my brains engaged) but it won’t be full time or as intense as my current work.
Financial Independence is different for many folks. Just figure it out for yourself, and go get it.
Nothing wrong with working a bit for entertainment after retiring from your existing career.
I’m 49 now; target date is 52.75. I extended the retirement date to qualify for my company’s annual bonus that year. Otherwise I would make it 12/31/2019. My father left me several EE bonds which begin to mature in the year I turn 53 and the income tax on those has been deferred meaning I’ll owe income tax on 30 years of interest. Those EE bonds were the old style ones with an interest rate floor so the interest is significant. My dad built a EE bond ladder but he never had to use it. I have several EE bonds maturing from age 53 to 57.
I considered the 401k tax implications as well. After 57 and if the loophole still exists, I may convert my 401k to a Roth IRA in annual batches to minimize income taxes. After age 59.5, I don’t have to do the conversion but can imagine a scenario where I do the conversion to let the assets grow tax free. For me there is no economic advantage to deferring my company pension past age 64 so I’m expecting to jump up a tax bracket that year. Of course, with the Trump tax reform package up in the air, the Roth conversion and/or existing tax brackets may not exist in the future.
Waiting another 2+ years allows me to ponder how I will spend my retirement. I have some ideas but want to give it some more thought and budget it out. Of course the best laid plans of mice and men often go awry. I may get laid off before then but I have a plan to retire in about 30 months.
You never know what the future holds. But financial independence gives the flexibility to adjust as needed. Sounds like a good plan.
I haven’t set a specific date for my retirement. I am in the same scenario as you,(a little older) my kids should be finished school when I am in my early 50’s and I will continue working part time till they are out of the house.
I am also set to retire by 55, when my kids should be finished school or almost there. I do want to stay very active afterwards but want to be free to do whatever I want. Without my three kids, I probably would have been a VERY early retiree, but wouldn’t trade for anything in the world.
They certainly change your life and perspective. I agree though I wouldn’t trade them for anything.
We are fast approaching 45 and plan on leaving the 9-to-5 world (I prefer to not call it retiring) in about 6 years.
A few key points for that age:
1. Given modest market returns, we should be able to reach our ‘magic numbers’ in regards to taxable and tax-advantaged accounts. We plan on doing Roth IRA conversions between 50/51 and 60 and NOT using any of that money – it’s purely a tax play.
2. Our house will be paid off. That said, we plan on downsizing, possibly before we leave the workforce. Proceeds from the sale of our home will definitely cover any future housing costs.
3. Kids will be out of school and on their own. They are 18 and 19 now, so (I would hope) that in 6 years they should be out on their own rather than living with us. So I appreciate your point on wanting to travel and not having to worry about your kids.
Any areas you looking to downsize too? It sounds like we’re not on dissimilar paths just some years apart.
Not sure yet. But we are hoping that a year-long (or whatever it takes) RV trip around the country will help us choose an area to settle in.
55 is a good age to retire. My goal is 52. My dad retired at 56 and said it was the right time for him. We in the FI community are the outside of the norm. The general public are not will to make the sacrifices that we made. I only share my goals with a select few.
Sometimes I forget how different it is. Fifty five seems down right old when you think with respect to the pf blogsphere. In the rest of the world it’s the impossible.
55 seems like a good number. There are plenty of healthy people at this age nowadays and living longer with advances in medicine, healthier/organic food options, and more gyms staying busy with fitness buffs. You want to be able to retire and physically able to enjoy an active retirement – like those people on TV and magazines traveling across the world 🙂
I look forward to reading the tax advantages of withdrawing from 401k before the mandatory age!
Haha. I love the reference to the magazines and TV. I’m picturing some cheese pharmaceutical commercial.
We are planning to retire ridiculously young (35), it would be downright insulting to tell our colleagues or friends. 55 however, seems perfectly fine! It’s the classical “early retirement” age financial planners have always talked about.
I’d be curious your coworkers thoughts about fifty five.