The Average Retirement Age in the U.S.: Do You Fit the Profile?

Is your mind constantly wandering to the “Golden Years”?

Planning for retirement in time is essential, but when is the right time to begin? What is the best time to start making some lifestyle changes?  

Retirement age depends on various factors, including your age, marital status, and source of income. Generally, preparing for retirement at least ten years before your desired retirement age is best. It’s also important to consider the impact of inflation on your retirement savings and investments.

We all inevitably reach retirement age someday, so it’s never too early to start planning for it. In this article, we’ll look at the main points you should consider when creating your retirement planning just to make sure your social security benefits, private pensions, and retirement savings are in order.

A Brief Overview of the Retirement Age in the United States

In the United States, the average retirement age is 64 years old. Normal retirement ages vary by state, ranging from 61 to 67. For example, the average retirement age in Washington, D.C., is around 67, while many states’ average retirement age is 65.

To be eligible for full retirement benefits under the Social Security Act, one must be 65. There will, however, be an increase in the minimum retirement age in the future. Some people may have to wait until they are 65 to 67 years old to start collecting Social Security benefits. 

Different socioeconomic groups also differ in average retirement age. For example, people with high school diplomas tend to retire earlier than those with college degrees. 

Explaining Social Security Benefits

Retirement and disability benefits are provided by Social Security to eligible adults and their families. Those who contribute to the program are eligible to receive benefits funded by payroll taxes. 

According to the Social Security Administration, these benefits include medical care, retirement income, and disability benefits. The payroll taxes are used to fund the program and are paid by employers, employees, and self-employed individuals.

Is Retirement Based on Income?

In the U.S., private pensions are often based on salaries. Pension benefits are typically calculated based on salary, years of service, and age. Pension income is typically paid out as a percentage of the salary you had during your working years, and it depends on the terms set by your employer and how long you’ve worked for the company.

On their website, the Social Security Association says: “Social Security benefits only replace a portion of your earnings when you retire, develop a disability, or die. Your benefit payment is calculated based on your earnings during your working career. As lifetime earnings increase, benefits increase.” 

Lifetime earnings and the start date for Social Security retirement benefits determine the amount of benefits received. Benefits such as survivor benefits, spouse retirement benefits, and spouse benefits are some different examples of Social Security benefits.

Private Pensions and Retirement Savings Plans 

In retirement savings plans, private pensions, 401(k)s, and IRAs have a crucial role—they determine how easy and reliable the retirement plan will be. For instance, in a health emergency or inflation crisis, they can complement your existing retirement plan and provide you with an extra cushion.

How Early Should Financial Planning Begin for Retirement?

Estimates say that when you stop working, you’ll need around 70 to 90 percent of your income pre-retirement to maintain your standard of living. Additionally, getting started on saving for retirement earlier will give you more flexibility with your investment choices, as you will have a broader range of options.

Can I Access My Private Pension Before 55?

It is best to consult a financial planner about your specific circumstances. Generally, you can only access your pension after age 55, which is on the younger side of the normal retirement age range. However, you can transfer your pension to a new provider anytime. 

With most pension plans, you can start collecting early retirement benefits at age 55 and cash out your pension fund if you resign or lose your job. However, you might have to pay 55% tax on your pension if you withdraw it early or lose all your benefits.

Strategizing Your Retirement Plan

The role that 401(k)s, IRAs, and private pensions play in retirement planning depends on understanding the average retirement age. In addition to Social Security payments, these investment vehicles provide retirees with additional income streams. Individuals can build a substantial nest egg over time by saving and investing in tax-advantaged retirement accounts like 401(k)s and IRAs.

Three Tips for Effective Retirement Planning 

To maximize compound interest, you must save early and consistently, emphasizing the importance of disciplined financial habits from an early age. The following tips can help you to plan effectively:

Debt Reduction 

Ease the financial burden! It is imperative to repay high-interest debt and aim to be debt-free by retirement. Paying off mortgages reduces monthly expenses, extending the longevity of retirement savings.

Investment Diversification

Balancing growth with risk management is vital, so investing in a varied mix of stocks, bonds, and other assets is essential. As retirement approaches, the effects of market volatility can be mitigated by adjusting the investment portfolio to more conservative assets.

Healthcare Planning and Lifestyle Adjustments

Adopting a healthier lifestyle, considering different health insurance options, and setting aside funds for healthcare can ease the sting of unforeseen health-related expenses. Thoughtful planning, aligned with personal retirement goals, ensures a safer and more comfortable retirement.

How is Pension Calculated in the U.S.?

The multiplier is typically 2%. For example, if you work 30 years and your final average salary is $75,000, your pension would be calculated like this: 30 x 2% x $75,000 = $45,000 per year. You now have a guaranteed lifetime income of $45,000. 

A Retirement Plan: Getting Ready

If you’re trying to master your finances, your first stop should be with a financial advisor. Their job is to guide you through the galaxy of saving options, investments, retirement plans, and debt reduction like you’ve never experienced before. With 401(k)s and IRAs, you’re not just stashing away treasure for your golden years; you’re also saving taxes. 

Here’s the kicker: the earlier you start, the more investment doors you’ll have, allowing you to dance your way through your financial journey as a retiree. So don’t just stand there—grab your financial future by the horns and ride into the sunset of success

Author: Luana Cantuarias

Title: Contributing Writer

Expertise: Blockchain, B2B, and SaaS

Bio:

Luana Cantuarias is a seasoned finance writer with over a decade of experience in the realms of Blockchain, B2B, and SaaS.