| Retirement planning should consider several factors. | | | | benefits/ pensions are greater when you retire later. |
| Of these factors, your likely your retirement age is, | | | | This suggests that early retirees may have a far |
| arguably, the most important. That age has | | | | lower benefit/ pension than others do, although they |
| implications for both risks and benefits of your golden | | | | receive the reduced benefit for a longer period. This |
| years. You should not decide what the age at which | | | | would be so even with annuity income, since older |
| you plan to retire is merely on a whim, but with | | | | annuitants get a higher payout and the compounded |
| careful considerations of its implications and | | | | interest effect offers exponential growth in the latter |
| consequences. | | | | years of accumulation. |
| Setting your investment horizon | | | | Longevity risk |
| Your retirement age determines the number of years | | | | Research by LIMRA has indicated that those who |
| that you have until you leave full-time employment. | | | | retire earlier have a longer life expectancy, on |
| The difference between your current age and | | | | average, than those who retire later. If you set your |
| retirement age would thus represent your | | | | retirement age at 50, for instance, you may be |
| investment horizon. A shorter investment horizon | | | | looking at about 35 years of retirement once you |
| gives you fewer options than a longer one. Those | | | | remain in good health. Those who retire at 60 tend |
| with a shorter horizon may have to take higher risk | | | | to have a short life span and, since they worked |
| to overcome a significant shortfall. Therefore, it is | | | | longer, face far fewer years of that shorter life span |
| important to set a realistic retirement age that will | | | | in retirement. Your retirement age significantly affects |
| give you a sufficient investment horizon to meet | | | | your longevity risk - the risk of outliving your life |
| your retirement goals. If your investment horizon is | | | | savings. |
| too short in your circumstances, consider retiring later. | | | | Availability of other benefits |
| Determining how you would meet your goals | | | | If you retire before a stipulated age, you would not |
| Knowing your investment horizon helps your | | | | be able to receive retirement benefits until you attain |
| investment strategy for retirement. By setting a | | | | your full retirement age. This applies to certain |
| reliable and realistic age, you can figure out which | | | | retirement benefits like Social Security, national |
| financial instruments will best aid you. For instance, | | | | insurance and annuities, among other benefits. If you |
| you may have greater emphasis on growth options | | | | set your retirement age before you can receive |
| (e.g. stocks/ mutual funds) if you have a long | | | | supplementary income (aside from your company |
| investment horizon or a high shortfall in a short | | | | pension), you need to plan how you will address the |
| period. Your retirement age is, therefore, critical in | | | | shortfall until you are eligible for other retirement |
| helping you decide what returns you need and what | | | | benefits. |
| risk you are prepared to accept in exchange for | | | | Several individuals stipulate a retirement age for |
| those returns. | | | | planning purposes without due consideration. The |
| Determining the size of your benefit | | | | result of this is that they are unable to plan their |
| When you retire, you must have adequate | | | | income properly. Ideally, you should base your |
| replacement income. The key word there is | | | | retirement age on an amalgam of financial, social and |
| "adequate." Setting the age at which you plan to | | | | psychological considerations. However, financial |
| retire allows you to estimate the amount of your | | | | considerations usually dominate because your |
| pension/ benefits at that designated age. Usually, | | | | comfort is highly dependent on them. |