When Should I Retire?

My father is currently 63 and is trying to decide when will be the best time to retire. Some of his co-workers retired early, before they turned 62 and now are concerned they won't have the income they need to live comfortably. His health is still very good, which is a major consideration for most people approaching retirement age. He and my mother want to be able maintain a similar lifestyle once retirement hits.

He has about $600,000 currently in savings and is wondering if this will be enough to retire on. The typical rule of thumb is that you can draw 5 percent of your savings every year in retirement. So if you've saved $200,000, you should be able to use $10,000 each year for your retirement.

If you are getting close to retirement age and are trying to determine how much income will be available to you from savings and social security, consider the following:

• Before Age 62. After age 59-1/2 you are eligible to tap tax-deferred savings without early withdrawal penalty. Federal income taxes will be due on pretax contributions and earnings.
• Between Ages 62 and 65. At age 62 you become eligible for early Social Security benefits. The benefits each month are lower than if you wait to begin taking social security after age 65. You can get estimates from the Social Security Retirement Estimator to try out different scenarios, working full-time versus part-time, as an example. Before age 65 you'll need to pay for health care out-of-pocket or through an employer's healthcare plan.
• Between Ages 65 and 67. Depending on the year you were born you will reach full retirement age between ages 65 and 67. After full retirement age, earned income no longer affects social security benefits. You become eligible for Medicare at age 65. Medicare covers preventive care, hospital stays, home health care and hospice care, depending on the coverage you select and are qualified for.

Keep in mind that retirement doesn't have to be about government benefits and health care expenses. You can have the flexibility that retired persons enjoy at an early age if you plan your choices carefully. With enough income coming in from real estate, stock dividends or businesses, you can cover your expenses and be free from the requirement to maintain continuous employment. You can pursue your interests and spend time working, volunteering or enjoying family and friends.